Life Insurance

Life insurance policies are tailored to offer your family a degree of financial help upon your passing. 

With the appropriate policy, this coverage can assist your family in settling debts and meeting the expenses of daily life.

There are various forms of life insurance, and understanding how they operate and the benefits they offer is vital in selecting the right policy for you and your family’s requirements.

In this article, we’ll shed light on common queries regarding life insurance in the UK. 

Life Insurance In The UK

Similar to other countries, UK life insurance plans offer a lump-sum payment to beneficiaries either upon the policyholder’s demise or following a predetermined period. This makes life insurance an extremely in-demand type of coverage here in the UK.

A life insurance policy stays active if you promptly keep up with your premium payments. Depending on your plan, your coverage may terminate after a specified term or continue throughout your lifetime.

In general, there are two coverage types available when it comes to life insurance in the UK:

1. Single Life Insurance Policy

This specific form of life insurance scheme caters to a solitary individual and pays the death benefit in the event of the insured person’s passing during the policy’s term, after which the coverage terminates. 

Certain couples opt for obtaining individual policies to guarantee ongoing coverage even following the death of their spouse.

Proceeds from single life insurance policies are also funnelled into your estate, granting you the freedom to allocate your preferred beneficiaries.

2. Joint Life Insurance Policy

A joint policy insures two individuals, yet the payout is made only upon the death of one person, at which point the coverage terminates. 

The surviving partner receives the death benefit unless alternative arrangements have been established.

In the event of a separation between a couple who’ve taken a joint life insurance plan, there might be the option to convert it into two separate single life insurance policies.

Types of Life Insurance Policy In The UK

1. Term Life Insurance

Term life insurance policies are designed to cover a specific period, as indicated by their name. 

You have the flexibility to select both the coverage amount and the policy duration, but it’s essential to note that these choices affect your premiums accordingly. 

This type of insurance pays out a benefit only if you pass away within the specified timeframe; otherwise, the premiums paid are retained by the insurer. Some providers also extend coverage in case of terminal illness.

If you’re contemplating term life insurance, you can choose from three main types of plans:

A. Level Term Life Insurance

Also known as life insurance, this plan disburses a lump sum if the insured person dies within the agreed-upon term, with the coverage amount remaining constant throughout.

B. Decreasing Term Life Insurance

Commonly used to settle mortgages, hence sometimes referred to as mortgage protection insurance, this policy’s death benefit decreases annually to align with the loan balance while your premiums remain unchanged.

C. Increasing Term Life Insurance: The death benefit in this policy escalates over the term of the plan to keep pace with inflation.

2. Whole-of-Life Insurance:

Whole-of-life insurance, also called life assurance plans, offers coverage for your entire lifetime, with payouts provided to your beneficiaries upon your demise. 

Due to the extensive coverage this policy offers, premiums tend to be higher compared to term life plans. One significant drawback is that if you outlive the projected lifespan, you may end up paying more than the policy’s eventual payout.

This insurance type in the UK may sometimes incorporate an investment component accessible during your lifetime and can be facilitated through financial advisers.

3. Over-50s Life Plan

Although not a predominant category, certain life insurers offer over-50s life plans, catering to individuals aged between 50 and 85. 

Premiums are determined depending on the benefit amount and the policyholder’s age. These plans provide guaranteed acceptance, meaning applicants are not obliged to provide medical information. 

Consequently, premiums are typically higher as insurers lack insight into the policyholder’s risk level.

Over-50s plans generally cap benefits at approximately £20,000, with waiting periods ranging from 12 to 24 months. 

In the event of the policyholder’s demise due to natural causes within this timeframe, beneficiaries do not receive a benefit, but the premiums paid are refunded.

Who Needs A Life Insurance The Most?

Not everyone may find life insurance essential, but there are specific individuals and groups who can derive significant benefits from having this form of coverage. They include:

• Earners in the family
• Parents
• Parents of special needs children
• Families with mortgages

Conversely, there are those who may not require life insurance, such as:

• Singles
• Individuals whose spouse earns sufficiently to maintain the family’s lifestyle
• Low-income earners who qualify for state benefits

Additionally, some employers offer death-in-service benefits, which function similarly to life insurance, with coverage linked to your salary. It’s worth checking with your employer to determine if such coverage is provided by them. 

However, even with these benefits, you may consider obtaining a life insurance policy if you believe the benefits offered may not adequately support your family’s needs in the event of your death.

It’s important to remember that employee packages are non-transferable, meaning you cannot take the benefits with you if you leave your employer.

Getting Life Insurance With Pre-existing Conditions

Pre-existing conditions don’t necessarily bar you from obtaining life insurance in the UK, but there are additional factors to consider:

1. Additional Medical Information 

Insurers might request further medical details, leading to additional screenings or examinations to assess your condition. Some providers cover the costs of these tests.

2. Potential Increase in Premiums 

If approved, you might face higher premiums reflecting the severity of your condition, as you pose a higher risk to the insurer.

If you’re above 50, then you can opt for the above-50s plan, which offers guaranteed acceptance. 

However, these plans typically offer lower coverage levels compared to standard life insurance policies and may come with higher costs.

Throughout the application process, your insurer will inquire about various aspects of your lifestyle and health to gauge your risk level. 

It’s crucial to answer these questions accurately and honestly, disclosing any pre-existing medical conditions.

Frequently Asked Questions (FAQs)

1. What happens if I don’t disclose my pre-existing medical condition during the life insurance application process?

It’s crucial to provide accurate and honest information during the application process, including any pre-existing medical conditions. 

Insurers routinely verify the medical details provided and may contact your doctor for confirmation. Deliberately withholding important medical information could result in your policy being cancelled and coverage invalidated.

2. What are death-in-service benefits offered by some employers in the UK?

Some UK employers provide employee packages that include death-in-service benefits, similar to life insurance, with coverage linked to your salary. 

These benefits offer financial protection to your beneficiaries in the event of your death while employed. However, it’s important to note that these benefits are non-transferable, meaning you cannot retain them if you leave your employer.