Chances are you know the basics about Life Insurance; that it pays out a tax-free lump sum of cash to your loved ones if you die…you know that the money can be used to pay off a mortgage and can go towards funeral expenses…you might even know that you can have it written ‘in trust’ so that your family won’t have the burden of a big tax bill to pay on the inheritance you have left for them. What does Life Insurance cover?
What you might not know is whether you would be covered if you died while alligator wrestling…or whether you can get insurance if you are a heavy smoker who lives exclusively on kebabs.
What Doesn’t Life Insurance Cover?
It’s genuinely quicker to tell you what isn’t covered by Life Insurance, but to be honest, there’s a policy out there to cover pretty much every set of circumstances, and so even if a certain policy has exclusions, such as they might not pay out if you were to die due to alcohol or drug abuse for example, you may still find a policy that would cover you (at much, much higher premiums of course! – but we’ll get to that later).
Basically, it depends on the individual insurer and how much you’re willing to pay for your cover, but the main point is that Life Insurance only covers death – it doesn’t pay out because of illness or disability…although most policies will pay out on the diagnosis of a terminal illness if you’re not expected to live longer than 12 months.
It’s also worth noting that if you have a serious health condition at the time of taking out your policy, your insurance might not cover you if you were to die due to that illness.
How Much Does Life Insurance Cost?
This is always the big question, and the answer is that it really depends on some of the factors I’ve already mentioned; do you have a job or a hobby that could be considered dangerous or risky? Are you overweight?…Do you smoke?
If the answer to any of these questions is ‘yes’ then your monthly premiums will be higher than tea-total librarians who always eat their five-a-day and have never touched a cigarette in their lives.
But these aren’t the only things that will affect how much you’ll pay for Life Insurance…
- Pre-Existing Medical Conditions – It’s probably not a surprise to hear that Life Insurance could be more expensive if you suffer with a medical condition when you take out your policy; this can be especially true of long-term chronic conditions such as Crohn’s Disease or Diabetes.
- Family Medical History – Again, probably not a surprise to learn that if several generations in your family have died from an inherited medical condition you could pay more as there’s a risk that you could suffer from the same condition in the future.
- Age – People often think of Life Insurance as something that only older people need to take out, but the truth is that the younger you are when you take out your policy the cheaper it’s going to be. As we age there’s an increased risk of developing a condition that will affect our life expectancy, and so premiums are going to be more expensive the older you are.
- Your Job – it probably goes without saying that if you work as a stunt pilot you’re going to be paying higher Life Insurance premiums than if you worked in admin, but when it comes to insurance there are more jobs that are considered ‘high risk’ than you probably realise! Anyone who works with offshore, at heights, underground or in the army will be considered higher risk than those who work in offices or in retail.
- Your Hobbies – People who regularly bungee jump at weekends will find that their Life Insurance is more expensive than those who collect stamps. #justsayin
Now, this is where it can be quite tempting to be economical with the truth….I mean, there’s no need to admit that you enjoy swimming with sharks in your spare time or that your smoking habit could give Dot Cotton a run for her money, is there? Better to keep schtum and save a few quid, right?
Wrong. If you aren’t honest about your health and lifestyle when you apply for Life Insurance, and then you were to die from a smoking or shark related incident, your family might not get a penny, and that lower premium you’ve paid will have all been for nothing anyway.
Even if you are older or have an unfortunate family medical history, the premiums still might not be as expensive as you think – there really is a policy for everyone – and for those of you who smoke or are overweight your premiums will be higher, BUT, there’s still hope for you to eventually pay less…but it will require some effort.
Most insurance companies will revisit the subject of premiums if you make lifestyle changes that will have a significant impact on your life expectancy; giving up smoking or losing weight for example. This isn’t to say that this drop in premiums will be instant, but, in time, you could certainly see a decrease in your monthly payments.
The Money Goes Wherever I Choose, Right?
As a general rule, yes – although it’s worth knowing that if you have a joint policy the money goes to the surviving policyholder, unless you’ve made other arrangements.
If it’s just you, the money will be paid to your beneficiaries; that is, whoever you want to benefit from the money, normally a spouse or your children. Here’s where you should consider placing it into a trust…
This means that the insurance payout won’t be counted as part of your taxable estate when you die, making it exempt from inheritance tax.
So I Should Definitely Get Life Insurance?
If you’re single and have no dependents, apart from the fact you probably live a wonderful stress-free life doing exactly what you want, when you want, you can probably save yourself a few bob and not worry about Life Insurance.
But if you have people who depend on you financially, Life Insurance is an affordable way to ensure that they are protected if you die. Life Insurance payouts can be used to pay off the mortgage and the bills, and cover the costs of raising children, thereby saving your family from any further stress or upset during an already difficult time….well worth a few quid each month we reckon!
If you want to know more about Life Insurance and how to find the ideal policy to suit your circumstances, please get in touch.