Why do we need life insurance, why is it so important?
Fortunately, gone are the days where we think life insurance is really morbid. I certainly try not to make it like that when I speak to customers about it. It’s a very important subject.
What you’re doing is protecting your family’s future – your partner and/or your children. It’s not a nice thing to think about, but what would happen if you weren’t here anymore? Most people don’t have millions of pounds in the bank to make sure that their family and loved ones are looked after. We have big mortgages and big bills so life insurance is a way to relieve the financial burden if you’re not there.
Typically you’re advised to look at life insurance when you take out a mortgage, when you get married and if you have a child. These days we protect everything. There’s an insurance policy to protect our phones, our cars, the house, our pets…. Don’t forget to protect yourself and your income.
The chances of needing to claim on life insurance are very slim so that makes it quite cheap. It’s important to really think about what the money would be needed for, and also to review your existing policies regularly. Make sure it does what it’s meant to do – protect the ones that you love. Pick up the phone and get advice. Don’t just rely on yourself to decide whether you have enough cover, because you’re not going to be the one to claim on it and then realise it needed to be different.
What will the Insurer want to know about me?
The questions that insurers are asking are much more streamlined today. Essentially what they want to know is whether you have any pre-existing medical conditions. That might be something you were born with, or a health condition you have developed.
They need to know, because if they’re going to give out a lump sum if something happens, they want to understand the likelihood – that’s all they’re doing.
If you have diabetes, for example, or high blood pressure, high cholesterol – all things which are common as you get older – it’s crucial to disclose that honestly and truthfully.
Your adviser should explain why they’re asking, so that you feel comfortable. They will want to know your age and your medical history. They will ask about your smoker status.
When you apply, the price is determined on the amount of cover you need. For example, a policy for £50,000 versus a policy for £500,000 will be vastly different.
The term that you take the policy over is important as well. If you took out cover worth £500,000 for just five years, the premium would probably be really low. But what’s the likelihood of you passing away in the next five years? Probably very low – which is why the premium is cheap
The term is very important – you need to think about your age when it ends. If you take a 15 year policy out at 30, it would end when you’re 45 years old which is still quite young.
At 45 you’re going to have to go through all the questions again, and by that time you might have a health issue or a condition which will put the premium up – or mean you are declined for cover. There are no exclusions in life insurance – it just pays out in the event of your death or terminal illness.
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Am I eligible to apply for life insurance?
There are certain eligibility criteria, which tend to be smaller things such as needing to have a UK bank account or be a resident in the UK. If you’re not residing in the UK and you don’t have a bank account, there are some insurers that would accept you but that depends where your medical history is held.
If you’ve got a GP in the UK and you’re resident here – which most of our customers are – then you shouldn’t have any problem with eligibility.
The other side to eligibility is your medical history. If you’re ineligible that might mean that the risk for that insurer is too high. But if an insurer won’t offer you a policy, there are usually insurers that would still accept you.
We have specialist insurers that take on those with pre-existing conditions such as high blood pressure, asthma, high cholesterol, or if you have recovered from cancer. Often if you’ve had cancer previously it might mean that you can’t get life insurance for a certain amount of time. It will depend on the severity of the illness, the treatment and if you are fully recovered with no limitations. You would evidence that with your medical records.
Speak to a broker – we will know which insurer would accept you. But most people start this journey in their late 20s and early 30s so getting life insurance is very straightforward.
How much cover do I need and how long should I get life insurance for?
This will be led by what you want to protect. If you have a partner or significant other that you want to financially protect then it’s all about how much cover you want for them. When you see an adviser they will typically talk about how much debt you’ve got: the mortgage, how much it is and how long the term is.
Then we look at family and lifestyle. We talk about the children and whether they will need additional financial security. The cover required is very subjective to the applicant, their savings, how much family support there is and what would happen if they didn’t have any life insurance.
One thing that could happen is that the surviving partner’s credit is affected. If they couldn’t pay the mortgage it would then go into arrears. The house could be repossessed or need to be sold. You could argue that the most important thing is just to pay for cover, because if the worst happened you would want to know that your family would have enough money.
But that’s very relative to each individual customer. How much does that full cover cost? Once you know the answer you can make an informed decision.
How much should I budget for life insurance?
Again it’s down to the individual, but it can be helpful to compare the cost with other things you pay for each month – takeaways, for example, or your daily coffee.
Some customers do worry and want to make sure that everything is fully protected. They’re extremely prudent, good at budgeting and spending wisely. Meanwhile, other customers are the opposite. They don’t budget. They spend every penny they earn every month.
That means some customers recognise that life insurance is worth the investment, while others grumble at a £15 a month plan.
As an adviser we point out what the risks could be. Your mortgage might be £1,000 a month and it’s not too hard to recognise that you need insurance to protect it. If you’ve taken out a big mortgage, you can expect the insurance to be a bit more costly, whereas if you’ve just taken out a £50,000 mortgage you could argue that you could manage without the income.
A lot of customers say that if they pass away their partner will be fine, as they are still working. While that may be true, there may be a child to look after and all these extra outgoings mount up because you’re not contributing to the bills. It’s worth careful consideration now, in case the worst does happen.
There are other things to consider too – we will have episodes purely on critical illness cover and income protection coming up soon, so keep an eye out for those.