Common Life Insurance Questions
We aim to help people understand the ins-and-outs of life insurance. We know how important it can be to be clued up before buying cover – so here’s a roundup of the some life insurance FAQs, to help you on your way.
Life insurance, which can pay out a tax-free lump sum, can be there to help protect your family financially in case you die. It can be important to get the right level of cover in place, to help make sure they’d be sufficiently financially supported without you – but also to help make sure the policy you choose can be suitable and your life insurance premiums are affordable.
Taking out life insurance cover can be quite tricky because it can means confronting a difficult topic, for one, but also working out your potential future financial liabilities. The policies themselves also come with different terms and benefits – not to mention the jargon – so it can be natural to have questions you may need answered before you get life insurance. What is life insurance? Do I need it? What amount of cover do I need? And so on.
Here are some commonly asked questions about life insurance.
1. Do I need life insurance?
It can depends whether you have anyone else relying on you financially. A life insurance policy can be ideal if you have loved ones who may be financially affected by you dying. This can often be the case if you have a partner, and if you have shared financial commitments, and if you have children.
To find out more about who could need life insurance please see our blog ‘Do I need life insurance?’
2. What does life insurance cover?
A life insurance policy can cover you if you die while you’re insured. If your policy comes with ‘terminal illness benefit’, it can also pay out early if you were diagnosed with a terminal illness (usually defined as having 12 months or less to live). The money paid out in the event of your death or if you’re diagnosed with a terminal illness can be used by your loved ones. Often it can help pay off the mortgage, if you have one, and to help cover raising children or funeral costs.
3. What is term life insurance?
Term life insurance is a policy that covers you for a fixed amount of time (known as the ‘term’). You can choose the policy term when you take out the policy – e.g. 10, 20 or 30 years. Term life cover can either be ‘level’ (meaning it will always pay out the same amount if you die while insured) or decreasing (meaning the amount paid out decreases over time). Choosing term life cover can be a way of making sure you’re only insured for the amount of time that you have financial liabilities, so you won’t pay premiums for any longer than you need to.
4. Do I need life insurance if I’ve got a mortgage?
Not necessarily. Taking out a life insurance policy is often advised when you take out a mortgage, because it can be a big debt to take on, so it can make sense to protect it in case something happens to you. Not being able to pay the mortgage due to an illness or injury can also be a big risk. Products like serious illness cover or income protection can help you protect your home too.
5. How much will life insurance cost me?
The price of life insurance can differ per person, because it can depends on several variables all unique to you. This can includes your age, health and lifestyle, as well as what level of cover you choose, what type of cover, and how long you need to be insured. Generally speaking, life insurance can be very affordable – but please bear in mind that the older you are, the more expensive life insurance can be.
6. How can I save money when buying life insurance?
People usually want good value for money when buying any kind of insurance – but when you take out life insurance, it can be important first and foremost to make sure the cover you choose would reasonably cover your needs. That said, there can be many ways to minimise the cost of cover but still be adequately protected – for instance choosing an appropriate term length to match your financial liabilities or
determining if certain financial commitments can still be covered by loved ones if you pass away.
7. Can I buy life insurance if I have a medical condition?
You should still be able to take out life insurance even if you have a pre-existing illness or condition. It’s very important to disclose any existing health issues when you apply if required; not doing so could lead to the policy not paying out. Depending on what you disclose, the insurer might accept your application as
standard; accept it but charge a higher premium due to certain disclosures typically posing greater risks; or postpone or decline it. Postpone can mean that the insurer wants to wait to offer cover. This is usually because you are waiting for tests and investigations. Decline can mean that the insurer does not want to offer cover due to a certain disclosure, however this does not necessarily mean that cover can not be offered elsewhere. You might also be required to provide a GP report in order to get covered.
8. How does smoking affect buying life insurance?
If you smoke, you will usually pay a higher monthly amount for a life insurance policy than if you didn’t. Someone of the same profile who doesn’t smoke would typically be quoted cheaper life insurance premiums. This is usually because insurers add a ‘loading’ to the monthly price for smokers – to reflect the potential increased health risks. You’ll usually only be considered a non-smoker if you’ve not
smoked (or used smoking replacement products) in the last 12 months.
9. Does life insurance have any exclusions?
Most life insurance policies have set exclusions that apply to anyone who takes out the policy, but your insurer may add exclusions specific to you, depending on what you disclose when you apply. A standard exclusion would be something like suicide; most insurers have a ‘suicide exclusion’ that means the policy won’t pay out if you die in this way usually within a minimum of 12 months of taking the policy out. A specific exclusion can be related to your particular health, occupation or hobbies.
10. Will I be able to change or cancel my life insurance?
If you change your mind about a policy you’ve just taken out, you can cancel your life insurance within the 30-day cooling-off period and you can get any premiums you have paid back. Otherwise, you can cancel your policy at any point, but you won’t get back any of the money you’ve paid to be insured back.
If you’re considering cancelling, it can be important to note that it can be more expensive to take out a new policy further down the line. Usually insurers are able to help ensure premiums are affordable. Or if you want to increase your cover amount, it can often be beneficial to take out a separate policy to cover further commitments or speak to the insurer about changing your existing cover. Many life insurance policies allow you to increase your cover after certain life events – like becoming a parent or taking on a mortgage – but you should look up the specifics in your policy documents to understand if this is an option for you.
11. Can I have more than one life insurance policy?
Yes, you can have more than one life insurance policy. If you already have a policy but realise you need more cover as your life has changed, it can sometimes be preferable to take out an additional policy to cover financial commitments not covered– as opposed to cancelling your existing policy and taking out a new one to cover your previous and new financial commitments. This can be because life insurance can get more expensive as you get older or as your health changes. You might be better off keeping your existing policy, with lower monthly payments, so you’ll only need to cover financial commitments at a new, possibly higher rate.
12. How does a joint life insurance policy work?
A joint life insurance policy is one that covers two people (or two ‘lives’, as it’ll probably be referred to in some policy documents). It is designed to pay out if one of the two people dies. It’s generally designed to cover a couple – so one partner can be financially protected if the other dies. Bear in mind that a joint policy usually ends after the first death; after which, the surviving partner would no longer be covered with this specific life insurance policy.
13. Does life insurance always pay out?
Yes, it will typically pay out if you die while you’re insured and you were honest about your health when you applied. It won’t pay out if die after your policy term, after cancelling the policy, or after missing payments (in which case, your insurer will cancel the policy). It might not pay out if you meet an exclusion.
14. Who will get my life insurance payout?
Some insurers offer a trust or beneficiary service. Here you can nominate who would receive the lump sum if you die. These are known as your beneficiaries. The benefit of using these services is that the lump sum is usually not subject to probate or inheritance tax. If an insurer does not offer this service, it may still be best to place the life insurance into a trust to help ensure the money goes to people you want it to go to. If you do not, then the lump sum may count as part of your estate and, if you have one, be left to the person stated in your will.
15. Do I get anything back if I don’t claim on my life insurance?
Like any insurance policy, life insurance is designed to be there to financially protect you in case the worst happens – even if you hope it doesn’t. You pay monthly life insurance premiums in return for being insured, but if you don’t die during your policy term, you won’t get any money back.
