What is Life Insurance?
Life insurance is one of the most sensible and cost effective ways to look after your family in the event of your death. The aim of a life insurance plan is to give you the reassurance that if you go to bed one evening and you do not wake up the next day, your loved ones should not suffer financial hardship. The insurance plans can be taken out with a partner or individually and can be used to clear your mortgage or for your family’s use.
With life insurance it is not advisable to compare the plans on price alone as there are so many other important factors involved that must to be taken into consideration
In addition to selecting the right insurance product to suit your requirements, Proadvice can offer advice to assist you with protecting the money you leave to loved ones by advising you on how to avoid the costly 40% inheritance tax.
The Financial Conduct Authority does not regulate some forms of tax planning and trusts.
What is life assurance?
Life assurance will pay out a lump sum if you are to die within your policies set term, however you can take out a whole of life insurance. Life cover can come in many different forms, for example, level term, decreasing term and increasing term insurance plans. You also have an option when it comes to the premium you will pay. There is the choice of guaranteed premiums, reviewable premiums and age costed premiums and when you opt to take out life cover you can choose to have the money paid out as a lump sum or as a monthly income. With life insurance you can also choose to take out the insurance policy on your own, as a single policy, or with a partner as a joint policy. So as you see there are so many choices and they can be daunting, Proadvice will explain everything you need to know and will help you to select the correct options and policy for you.
The most common type of life cover that people tend to opt for is level term cover. Level term cover will pay out the same value sum assured in the event of your death whether you are to pass away on day one of the plan or the final day of the plan. When taking out a mortgage, many people choose to take out a decreasing term insurance plan at the same time and this means that their sum assured will decrease in line with their mortgage.
A Proadvice adviser can recommend, if you are a couple that based on your circumstances, whether it is in your interest for you to take out a joint policy or two single policies. A joint plan will only pay out on the first persons death and the surviving partner would then lose their cover. Although the premium may be slightly higher, it may be beneficial to take out two single policies as then you are both covered as individuals.
In addition to a lump sum pay-out life insurance can also be paid to the beneficiaries as a monthly payment, if required, rather than as the lump sum. A policy that pays out monthly payments as opposed to a lump sum payout is often a cheaper alternative, however the income paid to the benefactors will only be paid for the remaining term of the plan. For example, if you were to die 6 months before the life insurance plan was due to expire; your loved ones would only receive 6 months benefit from the plan.
Whole of life insurance differs to all the other life insurance plans available as it will continue to run for as long as the life assured is alive. A whole of life insurance plan is usually more expensive than other life insurance policies on the basis that it is the only policy type that is guaranteed to pay out.
With a whole of life insurance policy, you have the option as to whether you would prefer guaranteed premiums or premiums which are renewed by the insurance company after a certain period of time which are referred to as reviewable premiums. Renewable premiums will vary from insurance company to insurance company and on how long you actually live for and could in theory result in you paying more to the insurance company in premiums than the insurance company would pay out on your death. Therefore, dependent on your circumstances, renewable premiums are not always a viable option.
Joint Life Cover
Joint life cover is the more competitive alternative when taking out life insurance especially due to the fact that tax effective life insurance plans are no longer available. There are no more restrictions on joint policies than there are on the single plans so all of your choices remain the same, for example, level term life insurance, decreasing mortgage protection, increasing cover plans and in addition to this, there is also the option for you to select your premium type from guaranteed or reviewable
The considerable difference between a joint insurance policy and two single insurance policies is the number of times the policy can pay out. If you have a joint policy with your partner and either one of you passes away, the surviving partner will forfeit their insurance. Proadvice has many customers of which are surviving partners where the surviving partner has sadly seen their partner pass away and experienced just how important the insurance was to help alleviate some of the pressures in perhaps what will be the worst experience of their lifetime.
Who can I take a joint life plan with?
Usually there are minimal restrictions on who you are able to take out a joint plan with, however as with all insurance plans there has to be an insurable interest. The majority of people will take out a life insurance plan with their partner but an alternative to this is that you are also able to take out insurance with a sibling, a parent and even a friend. This is more common when purchasing a property together.
If a business partnership takes out a business loan, the partners may have to take out a life insurance policy together to cover them.
A life insurance plan can only ever be for two people so if you had three brothers buying a house together they would have to take out one joint plan and a separate single plan or three single plans.
It is usually recommended that you take out individual life insurance plans as opposed to joint life insurance policies, especially in cases where you are buying a property with siblings or parents. As time goes by your life will change and you may no longer want to be tied to anyone other than your partner as you might want to start a family of your own so having a life insurance with a sibling or parent may not be an ideal scenario. By taking out a single life insurance policy you can amend your plan to fit in with your ever changing requirements and are not restricted by having another person on your plan.
Many people take out life cover when they are young, fit and healthy. The first inclination may be when buying their first home. If you were to take out a joint plan with a partner and that partner were to die in years to come and the surviving partner tried to take out some new life cover, they may find it much more difficult. For example, many every day conditions blood pressure, cholesterol or other aches and pains, can make getting insurance later on in life harder to do and you are much more prone to conditions like these, the older you become.
One way to avoid finding yourself in this situation would be to take out two single insurance plans. Even though the cost is often cheaper for a joint policy, the price difference in comparison to single polices is relatively small, especially if you consider the sum assured value between you has now doubled. Rather than the pay-out of £150,000 for the joint policy, between you would now be two £150,000 pay-outs, (£300,000 in total). This life insurance policy also allows the partners to change their own level of cover as time goes on. The two partners are not required to have the same level of cover as each other with two single plans; but they can still be customised to suit the couple’s circumstances but with a joint plan both people are insured for the same amount. The single policies allow people to pay for their own share of their insurance which can be particularly useful if one of you suffers with a medical condition that could affect the underwriting of the policy.
Should a couple’s relationship break down, having a single policy allows the individuals to continue with their existing life cover separately rather than them having to reapply as they would if they had a joint policy.
With single insurance policies the extra risk posed to the insurance company is minimal as there is just as much chance of claiming on a single plan as there is on a joint plan.
What is Whole of Life Insurance?
There is no set term for a whole of life insurance plan, it is as stated for the whole of life. These whole of life plans can be used to cover mortgage costs, family protection and even funeral expenses and as the plan has no expiry date, the cover will continue to protect the insured individual until the life assured passes away.
If you set your plan into trust, it will normally mean that the pay-out will be tax free. With a whole of life policy there is a chance that you could end up paying more into the policy than the potential pay-out may be. Whole of Life Plans carries an investment element, albeit to provide life cover.
If a whole of life plan is too expensive for you to consider, then you could consider a long term, term plan. Many term plans can now be run until the age of 90 and there is currently decisions being made on whether the plans may be extended to the age of 95 or 100 years old. This may be a cost effective way of reducing your monthly outgoings but still enabling you to get the cover that you need.
Please note that currently if you live to the age of 91 you would have no life cover as the plan will expire when you reach 90 years old.
What is a Trust?
A life insurance trust allows you to choose who you wish your sum assured to go to in the event of your death; this is referred to as ‘writing in the trust.’ Writing your policy into trust ensures the potential life insurance pay-out is ‘ring fenced’ from the rest of your estate and so in the event of your death, the pay-out should be free of inheritance tax so your family will receive the full amount.
When you put your insurance plan into trust, you become the settler and by putting your plan into trust, you are ensuring that your loved ones get the pay-out of the sum assured quickly because as it not part of your estate, the pay-out does not have to wait for a Will to be read or Probate to be completed. A trust is the most time effective way that a life insurance plan will pay out and is usually within 30 days.
With a trust you also get to choose who will benefit from your money in the event of your death. The recipient of the money is called a beneficiary.
A trust will come into force upon your death and as you are no longer there to explain what you would like to happen to your money, you will have appointed trustees to act on your behalf. The trustee will have a similar approach to an executor of a Will. The trustees will ensure that the life insurance money is distributed in accordance with your exact wishes.
A trust means that the people you wanted to receive your will receive it, rather than having to follow the Intestacy Rules without a trust.
Setting a plan into trust will ensure that the proceeds from your plan are paid out quickly and to the right people and as the payout will not form part of your estate, there will be no inheritance tax to pay.
A trust may not be suitable for everyone as when you put a policy into trust, you have to be certain who you want to be the beneficiary or beneficiaries of the sum assured to be as once it has been placed in a trust can be extremely hard to alter or to remove the plan from trust altogether, if required in the future could prove problematic. By appointing trustees, you are giving the delegated individuals control of the plan.
What types of Life Insurance are for available for women?
Women are now entitled to exactly the same insurance options as men, due to gender neutralisation which came into force as of the 21st December 2012.
One of the first choices to make when you decide to take out an insurance policy is the amount of life cover required, so how much money you want the policy to pay out in the event of your death. This is referred to in insurance terms as the sum assured. You can within reason; select as much or as little life insurance cover as you desire, however there are some providers that will cap their cover so have a minimum and maximum amount of cover they will offer with their insurance policies.
The levels of cover an insurance provider offers will differ from one insurer to another. The amount you choose is down to you and your individual circumstances. Some people will choose a sum assured that is just enough to cover their mortgage whereas others may opt for several times their salary in order to ensure their family are protected.
The sum assured will pay out as a lump sum in the event of your death. If you have chosen to adopt a level term plan, this means that the life insurance policy will pay out the same sum assured amount on the last day of your plan as it would do on the first day of your plan. An alternative to this would be an insurance policy with an increasing option, which means that each year the premiums will increase in line with the Retail Price Index (RPI) as will your sum assured, so the rate of inflation will not need to be of concern in relation to your life insurance policy.
The most competitive option for life insurance is decreasing and is often taken out with a mortgage. The sum assured will decrease roughly in line with the mortgage, so that in the event of death, there are sufficient funds to cover the outstanding liability on the mortgage and lessen the financial burden. This is dependent on the interest rate you are paying on your mortgage and also on the basis that the interest rate does not go above the selected decreasing rate on the life insurance policy.
There is an option to have the sum assured money paid out to the benefactors monthly; this is called Family Income Benefit. These life insurance plans are designed to provide your loved ones with a monthly income amount that is tax free, which will help them to cover their bills and living costs. Some people will use the family income benefit monthly payment as a way to replace their salary and to benefit or maintain their families’ lifestyle should they pass away. By putting your life insurance into a family income benefit plan, you can be assured that there is no lump sum payment that can be spent ahead of the planned time. The family can also be reassured with the knowledge that they will have a monthly income, (over the term you have selected), in what can be an extremely difficult time.
If you are taking out a life insurance plan with a partner, you can choose whether to select a joint life insurance plan or two single life insurance plans. A joint life insurance plan will only pay out on the first event, which means that when the first person out of the two people named on the joint life insurance plan passes away, the sum assured is paid out and this pay out completes the policy. This leaves the surviving partner with no life insurance cover. By having two single life insurance policies if your partner were to pass away before you, your policy will remain in place and you will continue to be covered and still have your plan in place. In many cases the cost for a joint life insurance policy is almost the same as for two single life insurance plans.
With your life insurance cover you can choose how long you want the life plan to run for. This is called the term of the plan. The longer the term you choose for your plan, the more expensive the plan will be. It is a common belief that the older you are the more likely you are to die and a sure fact that one day we all will die and statistically the older you are, the more likely this is to happen. If you were to cancel your life insurance plan or live longer than the term of the life insurance plan there would be no monies paid back to you as this is not an investment. As most life insurance plans no longer have investments attached, they are currently cheaper than they have ever been.
There is an option when taking out your life insurance policy to have a whole of life plan. These life insurance policies, as it suggests in the name, will run for the whole of your life or until you cancel the plan. With a whole of life plan you could actually end up paying more to the insurer for the life insurance cover than the actual, potential pay-out. The amount you pay is relative to how long you live for, as the longer you live the more you will end up paying.
How do I get cheap Life Cover?
Pro Advice Financial Services Limited, (Proadvice) compares quotes from the whole of the insurance market for you. Proadvice will examine the small print to find you the best plan available to suit your circumstances. Pro Advice Financial Services Limited is an appointed representative of Sesame Limited which is authorised and regulated by the Financial Conduct Authority (FCA). In being part of the Sesame network, it means that Proadvice are able to obtain preferential rates from the insurance companies that a broker would not have access to working on their own. Proadvice will not charge you a fee for setting up your insurance plan as we are paid by commission from the insurance company.
An insurance company’s sole priority is to insure people. Insurance companies do not want to spend time, effort and money themselves looking for people to speak to about their insurance requirements, they do not want to employ people to advise and administrate the applications for potential clients when they come through. This is why an insurance company will use a broker as this will bring the clients to them. The money saved by the insurance company by doing this is passed directly on to you by offering cheaper rates to the brokers than they would do directly through themselves. Many insurance companies will not accept a client who does not apply through a broker.
Here at Proadvice we are so confident you will not beat our prices, (with a genuine like for like policy), that we will give you £50* pounds if we fail. Proadvice are so confident that we can secure you the best rates possible from the insurance companies available on the market that if you take out a policy with Proadvice and then find it cheaper elsewhere, providing it is a genuine like for like policy, we will match it and give you £50.*
*Terms and conditions apply.
Exclusions on Protection
With life insurance policies, in the past there would be standard exclusions built into the plans, which means that if you were to die in any of the circumstances listed in the exclusions, you would not be covered and the insurance policy would not pay out. For example;
- Alcohol or drug misuse
- If you take part in criminal activity
The good news is many insurers these days have omitted most, if not all of the above. It is still wise to speak to your Proadvice Adviser and read your Key Feature Document to confirm that you are happy with a plan that may have an exclusion(s).
The life plans will not add extra exclusions due to your medical history, job or family history. If there is an added risk because of your circumstances the premiums would be increased by the insurance company rather than exclusion added.
Normally a life insurance provider will not add extra exclusions to your policy due to your medical history, job or family history. If there is an added risk due to your circumstances the premiums are normally increased by the insurance company rather than an exclusion being added. This added risk reflected in your premium increase is referred to in the insurance industry as the premium being loaded.
Sickness plans such as income protection and critical illness cover have the same standard exclusions that a life insurance policy contains. However it is more common for them to add additional conditions based on your health and lifestyle.
For example, If your father, mother, brother, sister and grandparents were all to suffer with diabetes then some insurance companies will automatically increase your life insurance premiums and possibly add an exclusion for diabetes in your critical illness plan as you are more likely to develop the condition that had no history of it in their family at all. Exclusions can also be placed on your policy in relation to your hobbies, so if you take part in motocross every weekend then an income protection plan is likely to add an exclusion for this to your plan and if you are injured taking part in motocross, then the plan will not pay out.
Each insurance company will judge health, hobbies and lifestyles differently and some could offer the conditions at standard rates with no exclusions whereas other insurers may decide it to be a significant risk and this will be reflected in your insurance quote. It is our job to know who can offer you the best terms in these situations. To find out more, please speak to one of our experienced Proadvice advisers today.