Life insurance sales have soared in recent times as the pandemic has triggered more people to look at the different ways they can protect their families. When you take out life insurance, you are investing in peace of mind and a financial safety net for your dependents in the case of your passing. Policies usually pay out a lump sum which your family can use to cover ongoing expenses and pay off outstanding debt, such as mortgage payments. Without this lifeline, many families could seriously struggle and be forced to compromise the quality of their day-to-day lives or wipe out hard-earned savings to make ends meet.
At what age should I take out life insurance?
This entirely depends on your personal circumstances but it essentially comes down to one key point – if there are people who depend on you financially, then you need a way to support them should you pass away and your income stream stop. The need for cover naturally grows more pressing as we pass through the different stages of life and accumulate financial commitments such as those associated with having a baby, buying a new home or getting married.
Even if your income is lower than your partner’s or you have no major debts or financial obligations that would be passed down to your dependents, life insurance could still be a wise investment. For example, some people use life insurance pay-outs to cover funeral costs which typically fall in the region of £4000 or more. Whether life insurance would be a good investment will depend on your specific circumstances as well as the cost of your monthly premiums which are determined by factors including age and lifestyle.
Setting up Life Insurance
There are three main types of life insurance. The first and most basic is term assurance, where the individual chooses both the amount they wish to be insured for and the period they wish to cover. If you pass away after the term is complete, the policy will not pay out and all premiums are non-refundable. Within term assurance products, there are three options:
- level-term – pays out a lump sum if you die within the specified term.
- decreasing-term – the amount you’re covered for decreases over the term of the policy
- increasing-term – the amount you’re covered for increases over the term of the policy
The former two options can be useful to support your family in repaying a loan or fulfilling another financial commitment where debt reduces over time, such as school fees. Increasing-term policies are designed to stay in line with inflation and give your family the best possible value from their cover.
Another life insurance option is family income benefit policies, which provide your family with a regular, tax-free income until the policy end date. This can be useful to help keep up with regular monthly expenses without the risk of overspending or losing track of financial commitments.
Finally, we have whole-of-life policies that pay out whenever you die. As there is no set term with this type of life insurance and policies run for the remainder of your life, premiums tend to be more expensive than term assurance policies.
Will COVID-19 and the vaccine impact my life insurance policy?
There has been plenty of media scaremongering in the past few months that suggests having the COVID-19 vaccine will void life insurance policies. The Association of British Insurers has issued warnings about these false claims and insurers are actively trying to dispel this harmful misinformation. Which? has confirmed, after speaking to leading insurers, that having the vaccine will not have any implications on your level of cover and new applicants will not be asked whether they’ve had the jab.
It is still possible to take out life insurance if you’ve previously been diagnosed with coronavirus although if you are still showing symptoms, some insurers may delay making a decision about your policy until you have recovered.
If you die from coronavirus and all your life insurance policy details are correct and up to date (e.g. premiums paid and policy terms and conditions met), then there is no reason that your insurers will not pay out. It’s important to note that terms and conditions will vary between different insurers, so it’s always essential to read the fine print of your policy or take professional advice.
How to choose the most effective products
When it comes to life insurance, the most suitable products will depend on a range of factors including your age, life stage and the key reason why you wish to take out a policy.
For example, if you have just got married then you will have the option of either a single or joint policy, both of which have their pros and cons. While a joint policy is usually cheaper than two individual ones, it will usually only pay out once which means the surviving partner would need to take out their own policy in the event of their spouse’s death.
If you’ve just had a baby, there are policies that run until your child reaches maturity where pay-outs could be invaluable to pay for childcare costs, private education or university fees.
With so many important issues to consider, we recommend taking guidance from a qualified financial adviser. This is especially pertinent f you’re considering putting your life insurance policy in trust to avoid your family being charged inheritance tax, as this comes with many implications that need to be carefully considered. Our team at TR Wealth Management provide expert independent support to ensure that you invest in the most effective products and that your policy is arranged correctly. We can also suggest related insurance products to support you and your family, such as critical illness cover and income protection