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Do you and your loved ones have the right protection – or are you part of the 63%?

Most people would agree that having insurance is a sensible and important thing to do – especially if you have a family. Although dying isn’t something that any of us like to think about, no one wants their loved ones to struggle financially when they’re not around.

But many of us don’t have insurance – according to research conducted by Canada Life in March 2021, only 37% of adults in the UK had bought or had thought about buying life insurance. Other surveys have revealed that many people are put off by misconceptions about the cost and the honesty of the insurance providers.

In this blog, we’ll dispel some of those misconceptions and look at the different types of insurance and how they can help to protect you and your family.

Let’s start with 3 of the most common misconceptions.

1. I don’t need it;

If you’re young, single, with no dependents, no mortgage, or no family members you want to leave a gift to, then you might not need life insurance… for now, that is – but your circumstances might change over time.

As you get older, the cost of insurance becomes more expensive. When you’re young and in relatively good health, you’re less of a risk to the insurer, and this is reflected in the cost. But as you grow older, your life expectancy decreases, which means the risk to the insurer increases – along with the price.

So, even if you might not need insurance right now, it can be a good idea to set up a policy while you’re young and premiums are cheaper.

You might think that you don’t need insurance because you’re a stay at home parent and you’re not the main wage-earner. But consider what might happen if you were to pass away – would your spouse or partner be able to continue to work, with children to look after? A life insurance payout could help to cover the cost of childcare, allowing them to keep working and providing some financial stability.

You might have death in service benefits with your employer and think that this means you don’t need insurance. Although having it will give you some peace of mind and make things easier for your family, most death in service benefits pay out three times your annual salary – this might be a significant amount, but would it be enough to cover the remaining mortgage balance, for example?

And remember, not every employer offers death in service benefits, so should you leave your current job, you could find yourself without cover.

Insurance policies don’t just cover you in the event of your death. Critical illness cover and income protection pay out in the event that you’re diagnosed with a serious illness or have to take time off work due to illness or injury.

It’s easy to think that serious illness or death will never happen to you, and that’s understandable – no one wants to think about these things. But their frequency in the UK is hard to ignore:  

  • Someone is diagnosed with cancer every 2 minutes.
  • 1 in 2 people will be diagnosed with cancer during their lifetime.
  • There are 460 deaths a day due to heart or circulatory disease – that’s 1 every 3 minutes.
  • Someone is admitted into hospital due to a stroke every 5 minutes.

Behind every one of those numbers is a person, perhaps with a family that depends on them, who may now be facing an uncertain financial future.

2. Insurance companies avoid paying out;

It’s a common misconception that insurance providers don’t pay out. A 2015 survey carried out by Drewberry Insurance found that on average, people thought that 1 in 2 life insurance claims were refused – they believed that only 50%  of policies paid out.

However, research conducted by the Association of British Insurers in 2021 revealed the following figures:

  • In 2020, 98% of all life insurance, critical illness and income protection claims were paid.
  • The total amount paid out to beneficiaries came to £6.2 billion – that’s an equivalent of £17 million a day.
  • Of the 2% of claims that were not paid out, the main reasons for rejecting the claims were non-disclosure of medical information when the application was made, or the condition not being covered by the policy.

As you can see from the numbers, insurers do pay out in the vast majority of claims. As long as the policy is still in force, the payments are up to date, the information provided at application was accurate, there is no reason why a valid claim won’t pay out.

And as for the 2% of claims that didn’t pay, this highlights the importance of getting the right advice about your insurance policy. You need to understand what is being asked on the application and what conditions are covered by your policy. Speaking to a qualified adviser can help – they can answer your questions and explain anything you’re unsure about.

3. It’s too expensive;

Insurance policies – and their premiums – are calculated on risk. When making their decision, insurers will consider information about you such as:

  • Your age.
  • Your health.
  • Any existing medical conditions you might have.
  • Your weight and body mass index.
  • Whether you smoke.
  • How much alcohol you drink.

They’ll also consider how much you want the policy to pay out (known as the “sum assured”) and how long you want the policy to last.

Although these factors can mean that the price of insurance will vary from person to person, there are still many affordable products on the market. Our panel of providers offer premiums that start at as little as £5 a month.

That’s a relatively small price to pay, when you consider the potential financial impact of not having the right cover.

3. Types of insurance and their benefits;

Life Insurance

Life insurance pays out a sum of money to your family or other beneficiaries, in the event of your death. The payout can be used for any purposes, but most people set up a policy in order to:

  • Pay off a remaining mortgage balance so their family can own their home outright and not have to worry about meeting monthly mortgage payments.
  • Pay for their funeral costs so it’s one less thing for their loved ones to deal with during what is already a difficult time.
  • Clear any existing debts they might have so their family don’t have to deal with creditors.
  • Provide an inheritance or gift for children – setting up saving accounts, a university fund, or money towards a deposit on a house or other large purchase.

Having a life insurance policy in place can give you some peace of mind, knowing that when you pass away, your family will have some financial pressures removed.

Most life insurance policies pay out as a one-off, cash lump sum. Life insurance payouts are not subject to income or capital gains tax, but they could be subject to inheritance tax, depending on the value of your estate.

It’s a good idea to have your policy written into trust. This can help lessen or even remove any inheritance tax liability and the appointment of a trustee to carry out your wishes can mean that your loved ones get their money more quickly.

When it comes to how long you want the policy to run for, you have two options – term insurance or whole of life insurance.

Term insurance lasts for a set period of time, which you specify during your application. The term is entirely up to you, but you should consider things like the ages of any dependent children, and how long it will be before they will be financially independent. When deciding on a term, you should bear in mind that the policy will only pay out if you die within that term.

If you only want to make sure your mortgage is paid off, then decreasing term insurance might be suitable. With a decreasing term insurance policy, the amount that is paid out decreases over time, in line with the reducing mortgage balance.

Whole of life insurance does exactly as the name suggests – it covers you for the whole of your life. Providing that the payments are up to date and you have a valid claim, the policy will pay out, no matter when you die. Because insurers know they will have to pay out at some point, whole of life insurance can be more expensive than term insurance.

Most insurance policies (including some decreasing term policies) offer terminal illness cover, which means that if you’re diagnosed with a serious illness and given 12 months or less to live, your policy will pay out before you pass away.

Some insurance policies pay out a regular income over a set period of time, rather than a lump sum. This type of policy is known as a “family income benefit” insurance.

Family income benefit is a type of term insurance, meaning that the policy lasts for a specified amount of time and no longer. It can be suitable if you prefer your loved ones to receive a regular income, rather than the money all in one go.

When thinking about whether it’s better to have family income benefit, you should think about what it is you want to achieve.

For example, family income benefit insurance would not be suitable to pay off a remaining mortgage balance as it doesn’t provide a lump sum to clear the mortgage in full.

So, if you would prefer that your family receives a more significant and substantial sum of money, whenever you die, then family income benefit might not be for you and term or whole of life insurance might be more suitable.

As with any important financial decision, it’s worth talking to a qualified adviser, who can guide you through the different options and help find the right policy for you.

Over 50s Life Insurance

Over 50s insurance is a specific type of life insurance aimed at meeting the needs of older customers, usually between the ages of 50 and 80.

As we’ve mentioned above, it’s an unfortunate fact that as we get older, life insurance becomes more expensive – so the longer we leave it before setting up our life insurance policy, the more expensive the premiums will be.

Over 50s cover has more competitive pricing and there are no medical questions to answer during the application.

Over 50s insurance will pay out a cash lump sum, usually to a maximum of £10000. This is because Over 50s cover is most commonly used to cover funeral costs or leave gifts to family members.

Whatever you need it for, it’s never too late to get affordable insurance.

Critical Illness Cover

Critical illness cover provides a cash lump sum payment in the event that you are diagnosed with a serious illness or condition during the term of your policy.

The illnesses covered are extensive, and will vary depending on the provider, but typically include conditions and illnesses such as cancer, heart attacks and strokes, multiple sclerosis, Parkinson’s disease, brain tumours, kidney failure, blindness, or deafness.

Illnesses and conditions such as the ones mentioned above can have a massive impact on your quality of life, and that of your family. Having critical illness cover can help cover living expenses if you’re too ill to work, or the costs of any adjustments you might need to make to your home to be more comfortable.

As critical illness cover is a type of term insurance, you should consider carefully how long you want the policy to last.

Income Protection

Income protection will pay you a regular income in the event that you suffer an illness or injury that prevents you from working.

It will only replace some of your lost earnings, usually paying you around two thirds of what you would normally earn. It’s intended to cover your priority living expenses until you are well enough to return to work.

Income protection is especially useful if you are self-employed and having a policy in place can give you some reassurance knowing that some money will be coming in if you have to stop working due to sickness or injury.

3. Make sure you’re covered;

We hope this has cleared up any misunderstandings you might have had about insurance – but more importantly, we hope that reading this has prompted you to think about your protection needs.

If you have any questions or want to discuss your options, contact us to find a policy that’s right for you.