your guide to life insurance

Here you can a guide to life insurance but if you have any questions regarding life insurance to suit you, please speak to a financial adviser.

When did life insurance start?

Life insurance has been around for centuries in the form we know it today. The first company to offer life insurance in the UK was founded in 1706. By 1750 the insurance industry had developed mathematical formulas based on the forecasted life expectancy of people and in 1762 the first mutual insurance company was formed and pioneered the calculation of premiums on an age-related basis.

This is the basis of modern life assurance today which uses the same principles although there is a much wider range of policy types available.

What is life insurance?

Life insurance, at its simplest, refers to an insurance policy that will pay out an agreed amount upon the death of the person insured. It is also important to know that there are a range of “life insurances” and these are to protect events that may happen to your “physical person”. Other types of insurance, often called “general insurance” relate to property, such as your house, your car or your belongings.

Insurances of the “physical person” include –

Life insurance – pays out on your death.

Critical Illness insurance – pays out if you are diagnosed with a critical illness.

Investment Life Insurance – pays out an agreed sum on your death but will also have a cash value if you are alive when the policy reaches its end date.

Why might I need life insurance?

Type of Life Insurance You might need it if:

Life Insurance ü You have dependents i.e. children in full time education ü A partner who relies on your income ü A family living in a house with a mortgage that you pay

Critical Illness Insurance ü You could not cover cost of living on state benefits alone. ü You don’t enough savings to repay in full mortgages or debts if you could not work again ü You don’t have a partner who could support you financially if you became too ill to work

Investment Life Insurance ü You have dependents i.e. children in full time education ü A partner who relies on your income ü A family living in a house with a mortgage that you pay ü You want to build up money to receive when the policy matures.

How much life insurance do I need?

The needs a person may have for life insurance will be very different from person to person. To work it out you should first decide what it is you are trying to protect. The following are some common rule of thumbs:

· You may want to protect the amount you owe on your mortgage so it would be cleared on your death. In this case simply identify the amount of your outstanding mortgage.

· You may want to protect the amount you owe on your mortgage plus all your other loans/credit card/debts. If so simply add them all up.

· You may want to protect all your debts plus an amount to give your family a pot of money if you weren’t there to earn income. This is more difficult as “the family pot of money” is difficult to calculate. It would not be unusual for this to require a sum of £1 million or more.

In deciding how much life insurance you may need one of the important factors will be how much is the monthly premium, and can you afford it? Many people do have to settle for less insurance than they really need because of this. However, if you take out insurance at the youngest age you can the cost will be a lot less than taking it our when you are older.

Life insurance terms: What are they?

To choose the right type of life insurance policy, you will need to work out how much money you need in order to protect your dependents. Take into account living costs and outstanding debts such as your mortgage repayments.

Level term insurance

With level term life insurance, you pick the size of the pay out, known as the “sum assured” and the policy lasts for an agreed amount of years, known as the “term”.

The sum insured, and the premiums remain fixed with a standard level term policy – which means neither the premium or sum insured (your pay out) will increase with inflation.

The policy can cover a fixed debt or provide a lump sum for your dependents in the event of your death.

Decreasing Term Insurance Decreasing term insurance is also known as mortgage protection. Your policy lasts for a pre-agreed term that usually matches the length of your mortgage. The level of pay-out usually decreases over the length of the policy, typically monthly or annually.

Whole of life insurance

A Whole of Life Insurance policy covers you for the rest of your life and your dependents could get a pay-out regardless of when you die. Whole of Life insurance is often more expensive than shorter term policies. O

Over 50s Life Insurance is a type of Whole of Life Insurance which has a guaranteed lump sum no matter when you die. The policies are typically taken out between the ages of 50 and 80, and majority take out over 50s life insurance to help to cover the cost of their funeral or outstanding debts.

With Over 50s Life Insurance premiums don’t usually rise and you often stop paying premiums at a certain age or time frame, dependent on your policy.

When might a life insurance policy not pay out?

As the insured, you have a duty to disclose certain matters to the life insurers. If you fail to do so, the insurer has the right to withhold a life insurance pay-out on the grounds of non-disclosure of information.

In the case of life insurance, any matters relating to the following must be disclosed:

· Employment

· Medical History

· Mental Health

· Lifestyle and hobbies – such as whether you smoke or partake in risky activities or hobbies such as skydiving or rock climbing

Did you know?

The earliest form of life insurance dates to Ancient Rome – ‘Burial Clubs’ covered the cost of members’ funeral expenses and assisted their family financially after their death. Protection Insurers paid out a record breaking £5bn in claims last year in income protection, critical illness cover and life insurance.

According to the ABI, the average claim for a term life insurance policy in 2017 was £78,323 with 98% of claims being paid (ABI)

If you have any questions regarding what life insurance policy to take out or the level of cover you require, speak to a financial adviser.