Life Insurance

Plenty of us will pay for insurance for our mobile phones and our pets, but over half of UK adults don’t pay to cover their biggest asset: themselves.

Thinking about what would happen financially if you were to die isn’t pleasant but it’s something you should do.

Would you want to leave your family with a mortgage they couldn’t afford? In a property they couldn’t pay the bills for? That’s where life insurance comes in.

How does life insurance work?

Life insurance pays out when you die, as long as you pass away during the policy term. The number of years you are covered for is determined at application stage.

Some providers will also pay out while you’re still alive. This tends to be if you are diagnosed with a terminal illness and have less than twelve months’ life expectancy.

You can choose the amount you are covered for and whether you want a level, decreasing, or increasing amount of cover.

Level cover

Level cover means the amount of money you’re insured for stays the same. If you die, you’ll get that amount of money, as long as your policy is still active. For example, if you choose to be insured for £100,000 until you’re 70, whether you pass away at 40 or 60, you’ll get £100,000.

Decreasing cover

Decreasing cover is usually used with a repayment mortgage because the amount you need to pay off the mortgage decreases with each payment you make. Since the amount paid out also decreases over time and eventually ends, it’s usually cheaper than level cover.

Increasing cover

Increasing cover tries to keep up with inflation by adding a bit more to the amount you’re insured for each year. However, the amount you pay each month will also increase to reflect this. It’s commonly used to protect your family and to cover a Help to Buy equity loan.

I’m single – do I need life insurance?

If you have children, or if anybody is financially reliant upon you, then life insurance is definitely worth considering.

If you don’t have any dependants, you might want to look at critical illness cover or income protection instead.

When should I get life insurance?

There’s no set age or time to get life insurance. As a general rule, the younger and healthier you are, the cheaper it will be.

Most people first consider life insurance due to a big life event, like getting the keys to your first home or having a baby. It’s also worth looking at if you have loved ones who are reliant on your income.

You can take out life insurance at any time. Speak to us if you want to discuss your circumstances in more detail, and we can advise on the right type of insurance for you.

Does life insurance actually pay out?

Yes! Insurance companies publish claims statistics every year, so you can see the percentage of claims they have paid out on.

One of the reasons companies don’t pay out is due to non-disclosure – that means the person covered didn’t mention a medical condition they already had on the application form. This can invalidate policies, especially if that condition could be linked to their cause of death.

Is the money paid as a lump sum?

Usually, when you get money from life insurance, you receive it all at once. But there’s something called family income benefit that pays out monthly instead of as a lump sum. If you want a monthly benefit instead of a lump sum, the policy needs to be set up this way at the very start.

What can the money be used for?

Whatever you want! It can help towards funeral expenses, paying off the mortgage, school fees, or just everyday living costs.

What you intend to use it for can help determine how much cover, and the type of cover, you need. Speak to an advisor, who can talk through this with you.

What will it cost?

That depends on a number of factors, such as:

• Age
• Smoker status and health
• Occupation
• Height and weight
• Medical history
• How much you want to be covered for
• How long you need to be covered for

Providers will charge different amounts based on their attitude to risk. An experienced insurance broker can help you get the right deal for your circumstances.

Is the money from life insurance taxed?

If you pay the premiums from your own net income then any money received from a successful claim is not currently subject to income tax.

It will, however, form part of the estate for inheritance tax purposes. It’s best to put these policies into trust where possible. This looks to ensure a quicker pay-out when you die, bypassing the need for probate to be granted, and aiming to mitigate inheritance tax liability.

Please note that tax laws can change at any time.

How can Protection Matters, in association with The Mortgage Store Chorley, help with life insurance?

We understand the peace of mind provided by having the right policies in place.

We’ll conduct a thorough review of any existing policies you have. If you’re employed, you might also have cover through work. Check with your employer to find out what you’re covered for and whether your family will benefit from it if you die. If workplace cover doesn’t provide enough for your needs, a separate policy might be necessary.

Once we can see your current level of cover and understand what your priorities are, we’ll work with you to put an appropriate insurance plan in place.