Unfortunately, the need for having adequate life insurance in place has never been more important.
The global COVID-19 pandemic has highlighted just how fragile life can be and therefore the need for financial protection. This has led to a significant spike in life insurance applications in the UK.
Life insurance is simply a financial safety blanket for an absolutely worst-case scenario, enabling you to cover the mortgage, meet family living costs, put the children through university or provide an inheritance, if you are no longer around to provide.
But how has this devastating pandemic impacted your ability to secure life insurance and what are the key considerations in 2021?
We have identified 5 areas to help you get the financial protection required, at the best possible price.
1. Life insurance changes post-COVID
There has been much confusion surrounding how COVID-19 has affected the life insurance industry in the UK.
Below we answer the key FAQs as detailed by FCA-regulated life insurance broker Reassured;
- Can you still get life insurance cover?
Yes, absolutely, although there have been some changes to how the process works.
- Have monthly premiums increased?
No, at the time of writing this article, there is no evidence to suggest premium prices having increased.
- Does life insurance payout for COVID-19?
Yes, if you have an existing policy and pass away as a result of COVID, as long as you were honest during the application process your loved ones will be entitled to a full payout.
- Has the application process changed?
Yes, you will now be asked some specific COVID-19 related questions during the application. Questions such as have you tested positive for COVID? Have you been asked to self-isolate? Have you displayed any symptoms?
- What if you currently have COVID-19?
If you currently have COVID it is unlikely your application will be declined outright. It is more likely that it will be postponed by the insurer until you have made a complete recovery, after which cover can commence.
- Will there be an exclusion for COVID in the policy?
No, insurers are not currently adding COVID as an exclusion in new policies.
2. Always compare quotes
In order to secure the right policy, at the best available price, it has always been vital to compare multiple quotes. However, post-COVID, as insurers change their underwriting criteria this has become even more important as prices can vary significantly.
Never proceed with the first quote you receive, compare different insurers and even different types of policies, to secure the right cover.
A convenient way in which to compare quotes is to use a reputable comparison website. That said, these websites do not compare prices from the entire market and so an FCA-regulated broker may be a better option, especially if you want to compare different policy types and/or need help with your application.
3. A joint policy, may or may not be a good option
When couples marry or purchase a property together, often they instinctively take-out joint life insurance thinking that is the best option. But is it?
The answer is, it depends.
If you are on a tight budget then a joint policy could be a good option because they can be up to 35% cheaper compared with paying two separate premiums.
However, whilst a joint policy will cover two lives simultaneously it will only ever provide one single payout, (usually on the first death). Thereafter the policy simply expires, leaving the surviving partner without cover.
In contrast, if you take out two separate policies, this could offer two payouts, effectively double the coverage. What’s more, in the instance of a divorce or break up, having your own cover makes things much similar as it is very uncommon that you can divide a policy.
Lastly, if one party has experienced ill health, perhaps due to COVID-19, then this will naturally inflate the monthly premium for the other party, meaning they unnecessarily pay more for their share of the cover.
In summary, joint life insurance is significantly cheaper, but take some time to consider if it is definitely the right option for you.
If you require more detailed information on the pros and cons of joint cover, see this comprehensive article from Reassured.co.uk.
4. Write your life insurance in trust, (avoid 40% inheritance tax)
Did you know that the proceeds from your life insurance policy form part of your legal estate and are therefore subject to 40% inheritance tax, (on anything over the £325,000 threshold).
You may be surprised to hear that there is a way to stop your life insurance from being subject to inheritance tax, whilst also bypassing the probate process for a faster payout….and its completely free!
The answer, writing your life insurance in trust.
By writing your life insurance in trust you pass the rights of your policy over to a trustee/s to administer on your behalf, much like the executor of a Will. For example, you may request that the payout be divided evenly between your three children, but that you only want them to receive the funds after they turn 18.
The vast majority of insurers offer a trust option at the time of application and you should not incur a fee.
5. Honesty and transparency is key
As mentioned above, COVID-19 has changed the application for life insurance. However, it is vitally important to always be 100% honest and transparent during the application process.
You may be tempted to withhold certain information about your past health, in order to secure a lower premium. However, doing so could actually invalidate your policy and render your investment a complete waste of money, potentially leaving your dependants vulnerable.
You may be surprised to learn that if an insurer thinks your passing is as a result of a pre-existing medical condition or is in any way suspicious, they can request access to your medical records.
So, always be honest to ensure your loved ones receive a full payout from a successful claim.
These have been challenging times for people up and down the country and across the world. Hopefully, with the continued roll out of the vaccination programme things are finally returning back to something like normality.
Regardless of how things evolve having adequate life insurance protection in place ensures our loved ones are provisioned for financially. This is particularly important if you have young children who rely on you.
The cost of life insurance is calculated based on the level of risk you pose, or put another way, the likelihood of a claim being made. As a result, as a general rule, the younger you are when taking out cover, the cheaper it will be. £200,000 worth of cover starts from approximately 20p-a-day.
Why not seize the day and secure the future?