Life Insurance Tips To Keep You Covered
A large number of people now own life insurance policies and a majority of consumers will just assume that their family will be protected if the worst happens. However, a number of problems can be discovered if these insurance policies are put under the microscope.
A lot of life insurance policies won't cover everything that you think they cover. A prime example is getting 'terminal illness cover' confused with 'critical illness cover'. These two terms sound familiar but they are utilised for totally different circumstances. Terminal illness cover will pay out if a doctor says the policy holder has less than 1 year to live. On the other hand, critical illness cover will pay out if a policy holder is diagnosed with a pre-defined serious illness such as cancer, stroke or a heart attack. A lot of people suffering from critical illnesses will survive for longer than a year. If their policy only covers terminal illnesses then the insurer won't owe a single penny.
Life insurance customers are also tripped up by thinking that they are covered for the same amount throughout the entire policy (known as 'level cover') when, in reality, their cover falls with every passing year (known as 'decreasing cover'). Decreasing cover has its place in the market. For example, the payout required may be lower each year as you pay off more and more of your mortgage. On the other hand, level cover makes more sense if you are paying an interest-only mortgage for example.
A lot of potential life insurance customers are reeled in by cheap policies often found on internet comparison sites. These sites appeal to the masses because they ask a minimal number of questions and return a small number of results which are usually not on a like-for-like basis. This can lead to customers taking out a policy that has no relevance to their needs or circumstances. It is advised to consult a professional life insurance adviser. Life insurance can be very important for your family so it's best to get it done right.
Another issue is life insurance policies which are not written under a trust. A trust will legally separate your policy and any claims from any other assets. This means that you're likely to receive a faster payout for any claims and it greatly reduces the chance of being stung with an inheritance tax bill upon death. The current inheritance tax threshold in the UK is £325,000, so if you have £200,000 worth of life insurance then your family would have to pay 40% tax on the policy excess.
Every cloud has a silver lining and a majority of your life insurance worries can be fixed easily as long as they are addressed early on.
James Savery, 10 June 2015