Life Insurance
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Life Insurance
Rita Kohli talks to us all about life insurance.
What is life insurance?
If you died during the time that you have a life insurance policy, it would pay out a lump sum to your loved ones.
Should I get life insurance? Is life insurance worth having?
It’s down to personal opinion, but I would say it’s well worth getting. It’s circumstantial, though.
If you’re single and buying your first property, it’s not necessarily worth it because you don’t have any dependents. If you died while that mortgage was in place, that mortgage would be paid off. But how significant would it be not to pay that off?
Whoever you leave your property to could just sell it and pay off the mortgage. Or, they could keep it as an investment. Either way, they aren’t depending on you.
But when you have children or a dependent adult such as a sibling or parent, it’s certainly worth having life insurance. They depend on you day-to-day, but also financially.
There is a wide array of life insurances you can get. You don’t necessarily need a mortgage to have life cover. It is a way of insuring your life.
Who is eligible to apply for life insurance?
Anybody under the age of 70 – depending on your age and health at the time. If you have any pre-existing conditions, those will be factored in, but anybody can apply and you don’t need justification.
We would ask you to explain what you need and why, just to determine the right amount of cover for you.
Life insurance can protect your mortgage, which can seem like the most obvious requirement. You can also choose to cover your family, depending on the dynamic, or your lifestyle.
Generally life insurance offers a specific lump sum for a set period of time, but you can also choose whole-of-life cover, which provides a specific lump sum when you die at any point in the future – with no time limit.
Are there different types of life insurance?
Yes. You can take life insurance to cover the mortgage, where you align the cover to the amount and the term. You can do that as a joint policy or as an individual.
You could have additional life insurance, especially if one partner earns more than the other so that they are insured for a larger sum – because the other person is more financially dependent on them. You can have that as an individual or joint policy.
A whole-of-life policy generally tends to be focused on one person, who anticipates that they’re going to live for a long time. They want it for the whole of their life.
Can I get life insurance if I have pre-existing medical conditions?
Yes. We would do some research to understand what the pre-existing condition is. It also affects the type of life insurance you can get. If it’s whole-of-life cover, for example, we need to know if that pre-existing condition will continue for the rest of your life.
Are you going to get better? Will you need regular medication or reviews? Each insurance company will decide how they feel about that. You may be classed as higher risk to claim on that condition, or you may be excluded for that condition but covered for everything else.
How much life insurance do I need?
It’s down to your personal circumstances. We can do a budget plan with you looking at where your income goes and how much you are left with as a family. We look at your holidays, car finance – your lifestyle.
The biggest focus is any debts you have, as you may want to clear those on your death so that your family doesn’t have to worry about repaying them.
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How long should I get life insurance for?
It depends what type of life insurance you take. If you take mortgage protection, it would last as long as the mortgage term you’ve taken out.
For insurance to cover your family or your children, you would decide how long each child needs to be protected until they’re adults in their own right. Some people opt for cover up to age 18, some choose 21 and others 25. Again, you would visualise what you would like to happen if you died during that term.
What are the costs involved in getting life insurance?
It’s based on everything I’ve just described, so it’s hard to pick a number out of the air. We have to individualise it, get your thoughts and work with you on your budget. But the younger and healthier you are, the lower the cost.
What happens if I can’t pay my life insurance premium?
When you take out life insurance of any kind, the insurance provider will offer you something called Waiver of Premium. I tend to automatically include this in quotes, because it’s often only pennies – it’s certainly not a huge uplift on your cost.
What it means is if you are off sick and you’ve had to cut back on your costs, that Waiver of Premium will pay six months worth of your premiums for you.
The insurance company will assess it as part of your medical history when we apply. You might be low risk and therefore they offer Waiver of Premium. Hopefully the provider paying six months’ premiums will cover you until you return to work with a regular income.
Otherwise, as soon as you stop paying, the policy will lapse and that cover is no longer valid. You’d have to start again.
What else do we need to know about life insurance?
One of the key things to discuss with life insurance is putting it into Trust. Life insurance is a policy for the benefit of your partner, family or dependents, whatever is needed. If you’re looking at family cover, it’s a good idea to put it into Trust. It doesn’t cost you anything extra. It’s an admin exercise, just completing some forms which I would help you with.
You assign a family member or friend as a Trustee, so that when you die they look after the money from the insurance company. You nominate them to pay that out to your beneficiaries – your children, wife, husband etc.
The life provider also is fully aware, so as soon as they’re notified about your death, they contact the Trustee about allocating the money.
Key Takeaways:
- Life insurance pays a lump sum to your loved ones if you pass away during the policy term.
- It is highly recommended if you have dependents, such as children or an adult who relies on you financially, but it is not necessarily essential for a single person buying their first property.
- The main types include cover to protect a mortgage (aligned to the term), additional cover (useful if one partner earns significantly more), and ‘whole-of-life’ cover, which provides a payout regardless of when you die.
- A Waiver of Premium is an often inexpensive optional add-on that can pay up to six months of your premiums if you are off sick, helping to prevent the policy from lapsing.
- Putting your life insurance into Trust is a key, free administrative step. It allows a nominated Trustee to look after the payout and allocate the money directly to your beneficiaries without delay upon your death.
YOUR HOME IS AT RISK IF YOU FAIL TO KEEP UP PAYMENTS ON YOUR MORTGAGE OR ANY OTHER LOANS SECURED AGAINST IT.