Frequently Asked Questions
What is Life Insurance?
Life insurance is about providing some financial security
for people who depend on you if you died. (So if you don't have a partner, spouse
or civil partner, children, or other dependants, you may not need life cover.)
What Different Types of Life Insurance are there in the
UK?
There are two main types of life insurance: term
insurance and whole-of-life insurance.
Term insurance (also called term assurance)
pays out only if you die within a certain term, and whole-of-life insurance pays
out whenever you die. Term insurance is the simplest and cheapest type of life
insurance, and is known as term insurance because you choose how long you're
covered for. Term insurance only pays out if you die within the term you've agreed.
If you live longer than the term, you get nothing. As a couple, you can also
take out term cover in both your names, with the policy paying out if either
of you die during the term.
Whole-of-life insurance pays out an
agreed sum when you die, whenever that is. These policies will
cost you more, partly because they will pay out whenever the event (death) happens,
but also because of the various charges that come with them. The cost also depends
on your lifestyle: if you're a smoker and do a dangerous job, you'll pay more
than a non-smoking office worker. Life cover also costs more for men because,
on average, they don't live as long as women. Always compare what's covered by
a policy, not just the price. Some might be cheaper than others, but they may
not offer the same level of protection.
What type of policy do you want?
For example, family income benefit (a policy which pays
out income rather than a lump sum), increasing policy (where cover and premium
rise over the years), decreasing policy (where cover and premium fall over the
years), renewable policies (which let you extend the original term).
What Causes of Death are Excluded?
Most
do not cover death due to alcohol or drug abuse. You might not be covered while
taking part in risky sports. If your health is poor when the policy starts, some
causes of death might be excluded or you might be refused cover altogether.
What questions should I ask the Life Insurance Company?
How flexible is the
contract? Can you reduce or increase cover easily as your circumstances change?
Are there extra charges for doing this? Does cover stop immediately if you miss
a payment or is there a period of grace? By paying extra, you can usually include
a waiver of premium. It pays the premiums if you can't work because of a long-term
illness so that your cover is not interrupted.
Can I change Insurer?
If you want to change insurer,
check the level of premiums for the new contract before switching (premiums may
have gone up because of older age or because you have developed medical conditions).
Also check the new level of cover compared to the previous one. Different benefits
may be available, and different exclusions may be applied – for example you may
not be covered for medical conditions that have developed before the switch even
if these were covered under the previous contract.
What does Life Insurance cost?
This depends on
several factors, such as the amount of cover you want and the length of the term.
Naturally, it's also based on the likelihood of your insurer having to pay out:
if you're a smoker and do a dangerous job, you'll pay more than a non-smoking
office worker. Term life cover also costs more for men because, on average, they
don't live as long. Always compare what's covered by a policy, not just the price.
Some might be cheaper than others, but they may not offer the same level of protection.
What is the difference between Life Insurance and Life Assurance?
Life Insurance never has an investment value but Life Assurance does. Therefore, Life Assurance is more expensive.
Life Insurance insures you for a specific period of time and if you die whilst the policy is in force the insurance company pays out a lump sum.
However, if you survive to the date the policy finishes the policy is worthless. Life Insurance only has a value if there is a claim.
A Life Assurance policy combines a guaranteed insured sum with a non-guaranteed investment. The value of the investment content directly related to the size of the guaranteed sum on your policy, the investment performance of the insurance company and the number of years the policy has been in force.
With Life Assurance, if you die during the policy's term the policy would pay out either the guaranteed sum or the value of the annual investment bonuses that the Insurance Company have added to date, whichever is the larger. The Life Assurance policy increases in value as the cumulative value of the bonuses attached to it build up, so the longer into the policy you die, the larger the pay out could be. However, if you survive to the end of the policy, the investment value will have reached its peak and you will get this value.
To make sure you buy the right amount of cover, with
the right terms and conditions, you should consider getting some advice.
