Critical Illness Cover turned 30 this year. It has developed in many forms over the years but the aim is still the same.
What is it?
It comes in many forms; its aim is to pay out an agreed amount to your loved ones in the event of your death. There are many different types of life cover options available to you; this is because everyone’s circumstances are different.
By ensuring you have the correct policy, you will safeguard your loved ones if you were to pass away. Most people take out life insurance at key life events, for example getting married, buying a house, retirement or having children.
The amount of life cover is chosen by you, however if you need help deciding on an amount, your Proadvice financial adviser can help and advise. They will also be able to recommend some things you may not have considered before. For example many people think by just covering their mortgage they can keep a roof over the heads of their family. However, once the mortgage is paid off, how do the family cover the other essential bills like gas, water and electric, not to mention phone bills, electric equipment and clothing? Most mortgage repayments cover a 1/3 of a family’s income, however if the unexpected should happen, the household has just potentially lost half. You want to ensure your family’s lifestyle is not impacted too greatly, and just paying off the mortgage may not be enough.
The cost of living has increased immensely in the last few years, in fact, at the supermarket your bill is probably 20% more than 2 years ago. A £100,000 life cover payout may seem enough now but if inflation continues to rise at the current rate, in 25 years it may no longer be enough to cover your needs. You have to take this into consideration when taking out insurance.
Do I need it?
This is a one protection policy you take out for everyone else, the selfless plan. For example, if you have any family or loved ones that would suffer financially if you were no longer here, maybe a mortgage with partner, or providing an investment for your children or ensuring that funeral costs were covered. It allows you to sleep a little easier knowing that if you do not wake up, the people you leave behind are going to be able to pay the bills.
How does it work?
Everyone’s circumstances are different, mortgage amounts, children’s ages. Our advisers will be able to talk you through the options and tailor make a policy to suit you. With life insurance, one size definitely does not fit all.
As everyone’s circumstances are different so should everyone’s policy. It is vital to know that your life cover may not automatically go to the person you expect. The rules of intestate are 100 years old and are not set up with modern life in mind. If you are not married, no longer living with your spouse or have children, you need to ensure your plan is set up correctly. If you pass away you are not there to ensure the life insurance money is going to the correct people. The answer to this problem for many people is to use a trust form. Luckily our advisers can guide you through completing a trust form and ensure that your wishes can be realised even though you are no longer there.
61% of people in the UK do not have any life insurance (1), so why is that? We often come across these three most common reasons:
(1. Aviva Family Finances Report)
I do not need life cover; I will sort it when I am older.
One of life’s great gifts is we do not know what is around the corner. Often things happen when you least expect it. Sometimes it is amazing and life affirming and other times it is terrible and you have to take stock. The best time to take out life cover is when you are young, fit and healthy. The older you are or if you wait for your medical history to change for the worst, you may find it very expensive. There is never the perfect age to take out insurance, but if you feel the time is right to take it out then now is the time to do it.
I have protection through my employer.
What a great employer you must have, do you know how much you are covered for? Many people have a death in service benefit through their employer but are surprised to find out how much or how little they are covered for. The plans are also in trust, owned by the company and in many cases you do not have control of who gets the money in the event of your death. If you for instance separated from your spouse, the money could still go to them rather than your actual current partner (if you have one). If you joined the company at a young age, the money may even be set up to go to your parents. The plan is also only valid for the length of time you work at the company or for as long as the company decide to keep the option open. It has been known for people to lose work related benefits like death in service for extra pay.
With a death in service benefit, you are giving control of your family protection to someone else. You have no control of the payout, how long you are covered for or, in many cases, who it will go to. We often tell our clients to think of the death in service as a potential extra rather than being there to rely on, should the worst happen.
I set all that up years ago, when I bought the house.
It is always a good idea to regularly review your life cover. I am sure like most people you have a mobile phone but are not still using the first phone you ever owned. The truth is, people review their mobile phone contracts for extra benefits and the latest mobile more than their life insurance. Ask yourself this question. Since taking out your first life plan, how many of these things have happened to you?
- You have moved
- Had children
- Job promotion
- Pay rise
- Taken a loan out
If any of these apply to you, then there is a very good chance that your life cover is no longer suitable. At Proadvice we offer a free review service to help you. The first part of this is to review your existing cover and see what we can do to help. The second part of this would be to continually review your plan as your circumstances change throughout your life, or when there are big changes in the insurance market. Many of our clients have improved their plans and saved money during these reviews. We have upgraded their life cover.