Life Insurance
Are you among the 51% of people in the UK who have some form of life insurance? (Easier) If so, do you understand exactly how life insurance works and feel you are getting the best deal for your money?
If you are one of the millions of Brits with no life insurance, perhaps it’s time to consider the benefits of life insurance and how to obtain a policy. Mark Jones, manager of Friends Provident Notes “Understandably, none of us really like to think about our own mortality, but we owe it to our families to ensure that we have made provisions, be it to pay off the mortgage or provide a lump cash sum.” (The Insurance Helpline)
What exactly is life insurance?
Very simply, life insurance is a legal contract between you and an insurer. You agree to pay regular premiums or payments in exchange for them paying out a designated sum to your beneficiary when you die.
Life insurance is available in several forms including term, whole life, endowment and family income benefit.
Who needs life insurance?
Life insurance is recommended for most people. In particular if you have any dependents, such as a spouse, children or other family members who depend upon you for support, life insurance is a good idea. If you have a mortgage or other financial obligations, life insurance can assure that they will be paid off at your death and your family will not be forced to sell the property.
According to Sainsbury’s Bank, it is estimated that around 4.2 million UK homeowners with total mortgage debt of ₤217 billion have no life insurance. (UK Net Guide) If the main income provider were to die, many of these families would be forced to sell their homes or let them be repossessed, as they would be unable to make the mortgage payments.
Another consideration is today’s increasing consumer debt. With over 2 million Brits who owe over ₤10,000 each on credit cards or personal loans, (Endsleigh) the financial repercussions if these people were to die uninsured could be disastrous for their families.
How do you get life insurance?
Life insurance can be obtained through several methods. In many cases, employers include a basic life insurance policy with benefits packages. When you take out a mortgage, your bank may arrange a life insurance policy to run for the term of the mortgage. (In some cases, banks may require this)
The most common procedure is to purchase life insurance through a broker or insurance company. Insurance brokers can be tied, meaning they are affiliated with a particular company or companies and only sell those companies’ products, or independent, meaning they can choose the best product for you from among all companies on the market. In 2006, there were approximately 260 companies in the UK selling life insurance products. (Association of British Insurers) so you will have plenty of choices.
Can anyone get a life insurance policy?
This depends upon the insurance companies—they are not required to write a policy for everyone that applies. Some people may be turned down or charged higher premiums for a life insurance policy if they are deemed a higher risk. Some of the factors that can influence pricing or availability include:
Age—people over 60 may find it difficult or impossible to obtain a life insurance policy
Occupation—if you have a hazardous job such as airline pilot, offshore oil worker or are in the military
Hobbies—if you participate in dangerous sports or hobbies such as parachuting, mountain-climbing or bungee-jumping
Smoking—virtually all companies charge an increased rate for people who smoke
Obesity—this is another condition that is correlated with higher disease risk factors
How do I know which life insurance policy to buy?
The life insurance policy that’s best for you will depend upon several factors. First, do you want term or whole life insurance? Term insurance, as the name implies is only valid, for a specified term, such as 20 years. If you die within this period, the company pays out the policy amount to your family. If you do not die within the term, the policy expires and you and your family receive nothing. This is why term policies are the cheapest form of life insurance. However, if you need to be covered for a certain period of time, perhaps until age 65, term policies offer an affordable plan.
If you choose a whole life policy, the company pays out a lump sum to your family at your death, whenever that occurs. Obviously, this will be a more expensive type of coverage, but your choice depends upon your needs. In some cases, whole life policies may have a cash value that can be cashed in or surrendered.
The best thing you could do would be to consult an Independent Financial Advisor. One survey found that 7 of 10 people with life insurance said they would seek professional advice before buying life insurance. (Insurance Daily) In 2006, approximately 63% of all life and pension insurance policies were sold through IFAs. (Association of British Insurers)
No matter which company or policy you choose, you will know that you have taken care of your loved ones. David Pickett, life insurance manager at Sainsbury’s Bank says “Life insurance provides financial cover should the unthinkable happen, enabling people to be secure in the knowledge that their dependents could receive a cash lump sum if they were to die.” (UK Net Guide)