2020 has been an extremely challenging year for many. At the time of writing this article there have been a total of 64,170 Covid-19 deaths in the UK and unfortunately many, many more globally.
This unprecedented and devastating pandemic has made many people, especially those with children, to consider what would happen to their dependants if they were no longer around.
In turn, this has led to a significant increase in the number of life insurance policies being applied for sold as people seek to protect their loved ones financially whatever the future may hold.
Surprisingly until now, Covid-19 has not impacted ones’ ability to secure life insurance protection. For most insurers the application process has largely been unaffected and the likelihood of being accepted onto a policy has not changed either.
With monthly premiums costing from 20p-a-day for approximately £200,000 worth of cover, life insurance can be a very cost-effective way of protecting loved ones. Although, it is important to state that the greater the risk you pose to the insurer, (or put differently, the greater the chances of a payout), the higher your premiums will be.
With so many people in the UK considering life insurance for the very first time, we have worked with leading award-winning broker Reassured, to compile the top 5 consideration for taking out life insurance in 2021.
- The policy length (or term)
As mentioned above, the greater the risk to the insurer, the higher the monthly premium. As a result, you should consider the length of your policy term to ensure it is not too long so that you pay unnecessarily over the odds, nor too short to potentially leave you financially vulnerable. Generally speaking, the length of your policy term should provide protection until your children are financially independent and/or until your mortgage is paid off.
As well as term-based cover, like decreasing and level term which only pays out if you pass away during the policy term and expires, there is also over 50 plans and whole of life insurance. These are forms of life assurance, where the cover lasts for as long as you live, (as long as you keep up to date with your premium payments).
So, life insurance pays out if you pass away during the policy, whilst life assurance pays out when you pass away – assuring a successful claim. As a result, life assurance is generally more expensive.
- The cover amount (or sum assured)
The cover amount, sometimes referred to as the sum assured, is also a very important consideration. Most people’s biggest physical asset is their home, with the average house price in England now £256,000, according to the ONS.
You should also consider other significant expenses like rising family living costs, funeral costs and childcare. The number of children you have and their ages (how long until they are financially independent) will influence the cover amount you require.
However, the greater the cover amount the more expensive your premiums. So, it is important to cover your current mortgage debt, to ensure your loved ones can remain in their family home if you were no longer around to provide. Although, you should be mindful not to take out too much cover unless you can afford it.
It is worth stating that two factors which have a significant bearing on the cost of your life insurance, are your age and smoking status. The younger to are, the cheaper your policy. And if you are a non-smoker too you will be able to lock-in super low premiums.
- Free welcome gifts
Many insurers these days will offer you a free welcome gift as an incentive to choose their policy. The free gift usually takes the form of an Amazon, Argus or M&S gift card, ranging from £50 – £100 in value.
Let’s face it, everybody loves a ‘freebie’ and if all your quotes are similar is price then it could make sense to choose the insurer offering the best free gift. That said, it should not be a key determining factor in your decision-making, as the value of the gift is insignificant in comparison to the overall cost of your premiums over the entire policy term.
Therefore, it is vital to compare multiple quotes as the cost of cover can vary wildly between providers as a result of different underwriting criteria.
You can compare quotes for free by using a comparison website or by using an FCA regulated life insurance broker.
- Multiple life insurance policies
In life, our circumstances can change, and this normally means our life insurance needs to change too.
You may buy a bigger, more expensive house or have more children. Unfortunately, some of us may go through a divorce and possibly remarry. We may lose our job which offered generous death in service benefits, thus increasing your reliance of your own life cover.
Unbeknown to many and obviously subject to your budget, it is perfectly legal to have more than one life insurance policy in place. Brokers Reassured have written this in-depth and helpful guide into having multiple life insurance policies.
You may take out very affordable decreasing term cover to protect your repayment mortgage and then take out an over 50s plan later in life to cover spiralling funeral costs, (average cost currently £4,417 according to research from insurer SunLife).
Or perhaps, you want to have a whole of life policy, which guarantees a pay out, to provide an inheritance to loved ones and a family income benefit policy to cover family living costs if you were ever no longer around.
It is usually very hard to change an existing policy, however there is little to no benefit from cancelling a live policy, (other than saving on the monthly premium). Therefore, it is often more financially beneficial to take out a second policy, resulting in your beneficiaries potentially receiving two payouts.
- Non-disclosure (be honest on your application)
Non-disclosure is a term used in insurance to describe the failure to provide complete and honest information during application process, in an attempt to secure lower premiums.
Whilst telling a ‘fib’ or withholding information during your life insurance application may seem appealing, it could in time invalidate your policy completely, rending your selfless investment a waste of time and money and resulting in a claim being declined, leaving your dependants exposed.
That is why it is always vital to be 100% open and honest during the application as insurers have the powers to investigate your passing if they believe there to be any suspicion.
For example, you withhold information that you have very high blood pressure and a family history of heart problems and later pass away as a result of a heart attack.
This is not meant to be scary or off-putting, but just to emphasise the importance of being truthful so to maximum your investment. On average approximately 99% of claims are paid out in the UK, so as long as you are honest your family will benefit from a successful claim, which can take the financial burden off of their shoulders at an already stressful time.
We hope that this article has been helpful and informative.
If you are considering taking our life insurance, remember the younger you are when you take out your policy, the cheaper the monthly premiums will be.
Why not lock-in very low premiums for an extended term (30 years plus) and protect your life and your loved ones no matter how your life evolves over the coming decades.