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Life Insurance Frequently Asked Questions

Elaine Brookes Steve Case

Author: Steve Case - Insurance Expert

Reviewed & Fact Checked By: Elaine Brookes

Updated: 31st December 2023

life insurance faqs

Why should I have life insurance anyway? Here are some answers to commonly asked questions

Most insurance policies are designed to protect the property of the insured. Life insurance is designed to protect dependents from the financial impact of your serious illness or death.

Some mortgage lenders require homeowners to have life insurance. This assures that the mortgage balance will be repaid if the homeowner dies before the mortgage loan is satisfied.

Should people without mortgages purchase life insurance?

Yes, because a life insurance policy can be used for various purposes. Basic term insurance can run for the duration of the mortgage. Decreasing term insurance features coverage that decreases over time.

If I am young and healthy, do I need life insurance?

The main factor when considering whether life insurance is worthwhile is whether another person will suffer a financial loss upon your death. Will family members be able to make mortgage payments and pay household expenses?

If you have a joint mortgage with a partner, does that person depend on your income to help repay the mortgage? Regardless of age, purchasing a life insurance policy is wise if someone relies on you for financial support.

What happens if I stop paying my premiums?

If you discontinue paying your premiums, the coverage provided by your life insurance policy will cease. In the unfortunate event of your passing after this point, your family or dependents will not receive any monetary benefit, and you will not be entitled to a refund of the premiums you had previously paid.

It is imperative to carefully assess your financial situation and ensure that you can consistently meet the premium payments before committing to a life insurance policy.

Selecting an affordable policy is crucial to ensure continuity of coverage and provide financial protection for your loved ones.

What illnesses or health conditions are not covered by life Insurance companies?

When it comes to illnesses or conditions not covered by Life Insurance, several factors must be considered. While specific exclusions can vary between policies, certain elements commonly apply across the board.

One common exclusion is related to deaths caused by substance abuse, such as drugs or alcohol, as well as deaths resulting from suicide. These are typically not covered by most life insurance policies.

Additionally, those who work in high-risk occupations, such as those in the armed forces or the oil industry, may face complications when applying for life insurance.

Engaging in dangerous sports or activities is another factor that might lead to a rejected life insurance application. For example, people involved in motorbike racing or mountaineering might find it more challenging to secure coverage.

It is important to note that the specific exclusions can vary depending on the policy and insurance provider. Therefore, it is advisable to thoroughly review and understand the terms and conditions of any life insurance policy to determine what illnesses or conditions may not be covered.

Can I get Life Insurance at work?

Yes, it is possible to obtain life insurance coverage through your employer. This type of life insurance, often called death in service benefit, provides a lump sum payment to your beneficiaries in the event of your death while employed by the company.

However, it is important to note that relying solely on this coverage may not be sufficient for everyone.

You might consider supplementing your employer’s life insurance with additional coverage for a few reasons.

Firstly, if there is uncertainty about the longevity of your employment with the company, having your life insurance policy ensures uninterrupted coverage regardless of your employment situation.

When evaluating the adequacy of your employer’s life insurance offer, you should consider factors such as your outstanding mortgage, any other debts you may have, and the daily living expenses of your dependents.

It is essential to thoroughly assess whether the coverage amount will be sufficient to meet these financial obligations and provide your loved ones with the necessary financial security in the event of your death.

If I already have life insurance, can I still save money?

During the past decade, life insurance premiums have drastically declined. If you purchased coverage several years ago, you will probably find the same level of coverage now offered at a reduced cost. However, this may require switching to a new insurer.

A thorough market search is necessary to find the best deal; we do this for you at no charge.

Will a life insurance policy always pay a benefit?

Many policies feature payout exclusions, including suicide. Insurers also may not payout due to a situation the insurer has not been informed about.

For example, a life insurance policy would be voided for an individual claiming to be a non-smoker who begins smoking after being insured but does not notify the insurance company.

Does the policy have to be paid out all at once?

No, the policy does not always have to pay out the money all at once. Family income benefit is an option, where your dependents receive the payout in regular monthly instalments.

This ensures that your family does not have to worry about managing too much money at once. This option is often chosen by individuals who prefer a steady income stream for their loved ones.

Additionally, family income benefit policies usually have lower premiums than other life insurance types, resulting in a lower payout amount.

Can I take out a joint life Insurance policy with my partner?

Yes, you can indeed take out Joint Life Insurance with your partner. Joint life insurance is a type of policy specifically designed for couples. It provides coverage for both individuals under a single policy. In the event of one partner’s death, the insurance company will pay out a lump sum to the surviving partner.

However, it’s essential to understand that joint life insurance policies typically have some specific considerations. Firstly, the policy will only pay out once when one partner dies. This means that after the payout, the surviving partner will no longer have coverage under the same policy.

Secondly, it’s worth noting that the surviving partner may face challenges in obtaining life insurance coverage again.

This is because the surviving partner will now be older than when they initially applied for the joint policy. As age is a factor in determining life insurance premiums, it may be more difficult or expensive to secure coverage independently in the future.

Should I make amendments to my existing Life Insurance policy?

Regarding your Life Insurance policy, it is crucial to regularly assess whether it aligns with your evolving life circumstances and needs.

Changes happen over time; you may get married, buy a new home, or have children, which can significantly impact what you seek from your life insurance coverage.

Regularly assessing your life insurance can identify gaps or areas where adjustments may be necessary.

For instance, if you have recently married, you might want to consider adjusting your policy to include coverage for your spouse.

Similarly, if you have become a homeowner, assessing whether your coverage is sufficient to protect your mortgage or other financial obligations associated with homeownership is wise. If you have had children, you may want to increase your coverage to provide financial security for their future.

Remember to keep your insurer informed about any significant changes in your life. While making amendments to your policy based on these changes is crucial, it’s essential to understand that it might result in higher premiums.

However, overlooking necessary updates or failing to adjust your coverage to your current needs could leave you underinsured or without adequate protection.

Can I structure a life insurance policy to make continuous monthly payments instead of a lump sum?

Yes, this is typically done by purchasing a family income benefit policy. This coverage makes a monthly payment to beneficiaries, designed to replace the wages of the deceased (or possibly critically ill) insured.

A family income benefit policy usually costs less than one that pays a lump sum because the insurance company does not fund the entire benefit at once.

What if I require my Life Insurance plan to cover me until I die?

If your intention is to have life insurance coverage until the end of your life, a suitable option for you would be whole-of-life insurance.

Unlike term insurance, this plan guarantees a payout regardless of when you pass away, providing you and your family financial security.

It is important to note that whole-of-life insurance tends to be more expensive than term insurance because the payout is practically assured. Nevertheless, the benefit is that it ensures that your loved ones will be fully taken care of after you pass away.

When determining life insurance policy benefits, should funeral arrangements be considered?

Pre-paid funeral plans can be purchased separately, but these can be expensive. Adding funeral arrangement costs to the coverage level for a life insurance policy can be less costly.

What are the main types of life insurance?

Term life insurance provides only protection, while whole of life insurance is also an investment. Our website provides detailed information regarding each type of policy.

What is critical illness cover?

Critical Illness Cover, also known as critical illness insurance, is an optional add-on to regular life insurance that provides additional financial protection in case of a severe illness or disability diagnosis.

Unlike traditional life insurance, which pays out a lump sum to your loved ones upon your death, critical illness cover pays out a lump sum directly if you are diagnosed with a qualifying medical condition during the coverage period.

This type of insurance is particularly beneficial if you rely on your salary to support yourself and your dependents.

Suppose you are diagnosed with a critical illness or disability. In that case, the lump sum payout can alleviate some of the financial burdens associated with medical treatments, loss of income, or any other expenses that may arise during this challenging time.

It’s important to carefully review the medical conditions covered by your critical illness policy before purchasing. Our comprehensive critical illness list will hopefully be a helpful guide and is regularly updated.

Policies may differ in the number and types of illnesses, disabilities, or medical conditions they cover. Additionally, it’s worth noting that some policies may restrict the number of times they will pay out.

For instance, specific policies only provide a one-time lump sum payment upon diagnosis. If you receive this payment during a critical illness, your loved ones will not receive any benefits upon your death.

By choosing critical illness cover, you can find reassurance in knowing that you have an extra layer of financial protection in place should you experience a serious medical condition.

Why do some companies refer to term insurance as temporary insurance?

This wording is used because term insurance provides coverage for a specific timeframe, referred to as the term, not the lifetime.

What are increasable term and increasing term life insurance, and how do they differ?

Both policies accommodate increased costs that an insured may want to cover during a policy period. An increasable term policy offers the ability to increase premiums at specific times, like the policy anniversary date or when a particular event occurs.

With an increasing term policy, the premium is automatically increased by a pre-determined amount such as a fixed percentage per year or based on current inflation levels.

As the premiums increase on each policy, the coverage amount also increases. For example, if a £100,000 policy features a five percent premium increase, the coverage will increase by the same amount, resulting in £105,000 worth of coverage.

What is decreasing term life insurance, and when is it appropriate?

With a decreasing term life policy, premiums and coverage decline over time. A person who wants life insurance coverage that protects mortgage payments typically selects a decreasing term policy because the amount owed to the building society or bank decreases each month throughout the policy term.

A lender may refuse to provide a mortgage without proof of life insurance, but a lender may not force an individual to purchase its life coverage.

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