When it comes to navigating available Life Insurance policies it can be quite the minefield! We’ve assembled a handy list of 5 things to be aware of before you start and when you’re ready, we’ll be here to help you find the most suitable policy for your needs.
Fix the monthly fee
If you look for policies offering ‘guaranteed premiums’, this will mean the monthly fee is fixed. The other option available is a ‘reviewable’ choice, where the premiums often cost less at first, but your insurer can hike costs later on, meaning a cheap deal can potentially become costly as you age. If your premiums are guaranteed, your insurer will never change the price, so you'll know what you'll be paying over the life of the policy.
Honesty ensures the best policy
The best policy is the one most suitable for your needs. If you are not upfront and honest about your medical conditions and needs for your policy, it won’t pay out when you need it to, so essentially, it’s useless.
Likely things you'll need to disclose when getting a quote for a policy include your age, whether you smoke, your occupation and your health history. The insurer then uses this information to determine whether it will cover you and a price. Insurers each have their own rules around pre-existing conditions, so it’s important to seek advice, especially if you have a complex medical history.
Two can be better than one
Level term life insurance policies can either be taken out to cover just you – a single policy – or yourself and your partner – a joint policy. A joint policy is often cheaper, however it only provides one payout, usually on the death of the first policyholder, when the cover then stops. This is usually best suited if your partner is your only dependant and you'd have no one else to leave a second payout to.
However, if you had a joint policy and were to later split with your partner, you'd need a new single policy, and this could be more expensive as it would be based on your new age and health. Taking out two single policies is usually more expensive, but here you would get two payouts if you were both to die during each policy term. Equally it covers you personally, so works independently to whether you are still together with your partner or not.
In Trust to beat the Taxman
If you die with an active life insurance policy, the payout forms part of your estate, which could mean it's hit with a huge whack of Inheritance Tax. Yet, in many cases it's possible to avoid this by writing the policy in trust, if it's done at the time the policy is taken out.
If the policy is written in trust, the insurance pays out directly to your dependants, so it never becomes part of your estate, which avoids inheritance tax and often speeds up the payout.
It's relatively easy to do as most insurance policies include the option (and papers) for writing in trust directly at no extra charge. Note that there are different types of trusts and they can be difficult to change or cancel, even if all your beneficiaries agree, so think carefully about who a payout would be going to.
Protected against your insurer going bust
Many things can happen during the lifespan of the policy, and while your broker or mortgage insurance company may be doing well now, it could be a different scenario 20 years down the line. Here's how you could be affected:
If your provider goes bust, the Financial Services Compensation Scheme (FSCS) will try to find another insurer to take over your policy or issue a substitute one. Equally, if you've ongoing claims, or need to claim before a new insurer is found, the FSCS should ensure you're covered. If you’re looking to secure a Life Insurance policy, as always speaking to an adviser is an essential consideration when sourcing the most suitable policy.
Get in touch today to discuss your options.
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Trusts are not regulated by the Financial Conduct Authority.