Life Insruance policy types
Do I need Life Cover if I have a family?
The idea behind life cover and the main reason the majority of people take out life cover is to pay a lump sum to their loved ones in the event of death. If your family rely on you and your salary to support them, it is an unpleasant thought but what would happen if you suddenly were no longer around? Who would support your family?
The money left behind from your life insurance policy can be paid to your family in a number of ways; A lump sum payment, this can be used to clear a mortgage, loans and credit cards. Another popular option is a Family Income Benefit Protection plan which will provide your family with a tax free, monthly benefit every month until the end of the plan. This is often used to pay for school fees and other ongoing commitments. You may decide you wish to leave a lump sum for your children for when they reach the age of 18 or 21; this is referred to as putting a plan into trust and by setting up your plan into trust means that the money will be waiting for them when they reach the age you specified in your trust forms.
Many people do not consider what might happen if they were no longer here but by taking out a life insurance policy, you are providing a safety net for your family if you are no longer around to take care of them.
How much Life Insurance do I need?
If you have decided to take out life insurance cover then you will already have realised just how important it is to provide for your loved ones in the event of your death. The amount you need to cover all of your outgoings may prove to be more difficult to decide. Many people take out life cover to cover their mortgage repayment costs, so if they were to pass away then the mortgage is paid off and their family is able to keep a roof over their heads. Other people will look to replace their income and take a lump sum assured of several times their salary or opt to have a monthly pay out plan to provide ongoing cover for their repayments, bills and rent.
There is even a plan available to cover the cost of your children going to school and university. This plan will provide money when there are education related expenses, such as school trips and uniforms to buy.
While it is true your loved ones would obviously much rather you were still around to support them than claiming money on your life cover, knowing that your family will be looked after should the worst happen may make you feel reassured and will bring you peace of mind.
Every one of us is different, everyone’s circumstances are different and therefore everyone’s life insurance needs are also going to be different. If you are married and have three young children and a mortgage, you are probably going to require more insurance than you will if you are single, have no children and are renting your property.
Do I need life insurance if I have protection through my employer?
Many people have a death in service benefit from their employer but if you do, please ensure you are aware how much or how little you are covered for. The death in benefit plans are also in trust and owned by the company and in many cases you do not have control of who gets the money in the event of your death. If you separate from your spouse and in time find a new partner, the money could still go to your spouse rather than your actual partner.
If you joined your company at a very young age, the money from your death in benefit cover may even be set up to go to your parents. The plan is also only valid during your service to the company or for as long as the company decide to keep the option open to you. It has been known for people to sacrifice work related benefits like death in service in exchange for extra pay.
With a death in service plan, you are giving control of your family protection to someone else. You have no authority over the plan, no control of the pay-out, how long you are covered for or in some cases, who the pay-out will go to.
It is extremely advisable to regularly review your life cover policy. I am sure like most people you have a mobile phone and am fairly certain that you are not still using the first mobile phone you ever owned. The truth is mobile phone contracts are usually set over, for example, a period of two years.
When the two years are up, many people will generally review their contract, the offers available to them and handset rather than continuing with the same plan. On this basis, why would we not review our life insurance?
Ask yourself this question, since taking out your first life plan, how many of these things have happened to you?
- Moved home
- Had children
- Job promotion
- Received a pay rise
- Taken out a loan
If any of these apply to you and have occurred since taking out your life insurance cover, then there is a very good chance that your life cover is no longer suitable.
Mortgage Life Insurance
There is a chance that when taking out a life insurance policy that the sum assured you select will be based upon the value of your mortgage. Many people will take out life insurance to cover their mortgage amount yet as an oversight may not consider other repayments they may have. Your council tax, water, gas and electricity bills will still need paying. If you are a couple and used to two incomes coming into the household, to lose one income can make an immense difference to your situation.Most mortgages usually take up approximately 33% of the household income; if you were to lose your partner, you have now potentially lost 50% of that income. At Proadvice, we can help you to look at the bigger picture and ensure that you cover more than just your mortgage repayments.
How much will I save by quitting smoking?
Research carried out by Proadvice shows that for a non-smoking 31 year old male looking to take out £100,000 life and critical illness cover for 25 years will save on average £3,536 over the term of the plan when compared with a smoker of the same age with identical cover.
Think of that saving and do not forget you would also be saving on the cost of the cigarettes as well.
There are insurance companies who really do want to help you to look after your health and will offer you incentives to help you to quit smoking completely. Please speak to a Proadvice adviser today and we can guide you in the right direction.
What is Critical Illness cover?
Critical illness insurance is a long term insurance policy that is designed to pay a lump sum or monthly income on the diagnosis of certain life-threatening or debilitating, (but not fatal) conditions, such as a heart attack, a stroke, certain types/stages of cancer, multiple sclerosis and loss of limbs.
If you are to make a successful claim on your critical illness, what you decide to do with the money from your pay-out is completely at your discretion, you get to use your money as you see fit. This could be to pay off your mortgage, cover your bills while you are off work, or pay to have private treatment. In some cases the money could even be used to change your home to suit your circumstances, for example, wheelchair ramps can be added if necessary. The choice is completely down to you and your own individual circumstances.
It is often more cost effective and believe it or not, sometimes cheaper to take out life and critical illness cover together, rather than a critical illness policy on its own. Critical illness cover is more expensive on its own as you are seven times more likely to claim on the critical illness plan than you are on a life cover plan.
Do you have to have the same amount of Life Cover as Critical Illness cover?
The answer is no, you do not have to have the same amount of life cover as you do critical illness cover. You can choose the amount of life cover and critical illness cover to suit your individual circumstances and budget, for example, you could have £100,000 life cover and one year’s worth of critical illness cover of £20,000 pounds. This can also help to reduce the cost of the premiums payable for the cover therefore making it more affordable.
At Proadvice we compare quotes from the whole of the insurance market for over 100 different products. Our aim at Proadvice is to find you the best plan on the insurance market based on your individual circumstances. We have a team of dedicated financial advisers who will take the time to listen to your requirements and to explain the policy detail to you in the simplest way without any confusing insurance jargon and make absolutely sure that you are happy that you are taking out the right policy. At Proadvice, being qualified insurance advisers we are able to recommend plans to you that only advisers are allowed to recommend. If you have specialist circumstances, such as a previous medical history or you have what is classed as a dangerous job, for example, working at heights we can find the insurance company that will be able to provide the right policy for you. At Proadvice, we have the ability to search the whole of the insurance market unlike some other financial advisers who are tied into one insurance company, for example a bank or a mortgage broker within an estate agency. We guarantee that not only will we find you the best policy but also the best price that is affordable to you.