Guide to Life Insurance
What is life insurance and how does it work?
What is life Insurance?
Life Insurance, also known as Term Assurance or Mortgage Term Assurance is designed to cover you in the case of your death. Life Insurance can help cover the costs of a funeral or to cover the payments outstanding on a mortgage
What Types of life Insurance policies are available?
Decreasing term life insurance:
This type of life insurance may be suitable for covering a repayment mortgage. Decreasing term premiums are lower than their level term equivalents as the sum assured decreases over time, also the sum assured decreases during the policy term, but the premiums remain level.
Level term life insurance:
This may be suitable for those wishing to cover the risk associated with an interest-only mortgage, the sum assured remains unchanged during the policy term.
Increasing term life insurance:
because of inflation, the actual value of money will decrease over time – consider what might have been attainable with £1000 in 1990, for example, and what the same sum might buy today. To counter-act this, with increasing term assurance, the sum assured can increase by linking to rate of inflation indicators such as the RPI or by a pre-defined interest rate. Premiums will also increase annually. If the client decides that they do not want to accept the increased premium at any point, they can fix the sum assured (and premiums) at their current value - the policy will then become level term life insurance.
How much does Life Insurance cost?
The cost of life insurance is based upon a number of factors which include:
- Smoker / None Smoker.
- Body Mass Index (BMI).
- Length of policy.
- Amount of cover.
- Type of Cover (level, increasing or decreasing)
- Family History.
- Hobbies and pastimes.
- Medical conditions.
Will I get my money back if I survive the length of the policy?
This depends on the insurer, it is typical however for insurers to offer no cash in value for your policy, if you survive the term you will not receive any of your money back.
Should I take out Single or Joint Life Cover?
Any of the types of cover above can be taken on either a single or joint basis. On single life cover, the cover will stop once the insurer has paid out one claim. On joint life policies you may have the choice of a joint life first death, which pays out on death of first policyholder then stops, or joint life last survivor which pays out on the death of the second policyholder.
Can I take life insurance out for someone else?
The owner and the person insured are usually the same person but not always. The beneficiary is the person or persons who will receive the policy proceeds upon the death of the insured person. It is typical for a person to name their spouse as the beneficiary however you may specify the beneficiary as a non relative.
Will I need to see my GP to get life insurance cover?
In around 13% of cases, a GP’s report may be requested by the insurer before an underwriting decision is made especially if the sum to be insured is a large amount.
Will I need a medical examination?
A medical examination may be required, this is also known as paramedical underwriting. Tests may include a cotinine test, to determine if the client has recently used tobacco products; or a full blood profile test to measure blood cells and tissue.
Will I get a immediate decision?
You may be able to receive an immediate decision on your life insurance cover over the telephone. However, if an immediate decision is not available, the insurer may ask for a medical examination or for you to see a GP prior to the insurance being granted.
Can I cancel the cover if I no longer require it?
This is dependent on the insurer however it is typical that you will not receive your money back if you cancel after any initial cooling off periods that are in place (typically 30 days).
What is the difference between critical illness insurance and life insurance?
Life insurance policies will only pay out a benefit if the policyholder dies. Critical illness cover will pay a benefit should the policyholder be diagnosed with any number of different serious illnesses or become permanently and totally disabled and unable to work so they both cover different things.
Life Insurance guide topics
- What is life Insurance?
- What Types of life Insurance policies are available?
- How much does Life Insurance cost?
- Will I get my money back if I survive the length of the policy?
- Should I take out Single or Joint Life Cover?
- Can I take life insurance out for someone else?
- Will I need to see my GP to get life insurance cover?
- Will I need a medical examination?
- Will I get a immediate decision?
- Can I cancel the cover if I no longer require it?
- What is the difference between critical illness insurance and life insurance?
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