You may not have given life insurance much thought but if you’re already a homeowner or are thinking about buying a property, it can offer financial protection for your loved ones in the event of your death.
At Trinity Finance, we’re here to help you understand the types of cover available and find the best life insurance policy for your needs. Our mortgage and protection consultants are ready to discuss your situation and concerns before talking you through the process in a jargon-free manner. They can use their expertise to help counteract any obstacles that may be standing in your way, such as having a pre-existing medical condition. When you’ve decided on the level of protection and length of term you prefer, your affordable and tailored life insurance cover can begin.
What is life insurance?
Life insurance is a policy that pays out a lump sum to your loved ones should you pass away during the policy term. This can be used to pay off your mortgage or other debts and provide your loved ones with the means to pay bills and other living expenses. This gives you peace of mind that they will have financial security when you’re no longer around.
How does life insurance work?
As mentioned above, a lump sum is paid out upon your death although some life insurance policies provide cover if you’re diagnosed with a terminal illness and your life expectancy is less than 12 months. When thinking about your life insurance cover, there are various factors to consider before making a decision.
First, decide on the amount of cover needed to ensure your loved ones can live comfortably when your income is no longer a factor. Estimate their living expenses and add up any outstanding debts, including the mortgage, while also factoring in your funeral costs. If you have children, include the cost of their education and any childcare costs that may be needed. If you have elderly parents, consider the costs to care for them. The amount of cover you choose is called the sum assured. Next, decide how long you want the cover for. This can be 25 years, for example, to match the length of your mortgage. This is known as the policy term and the sum assured will be paid out by the insurance provider should you die within that term.
Single vs joint life policies
Another consideration is whether you want a single or joint life policy. One person is covered with single life insurance and the beneficiary needs to be nominated. A joint life policy, however, covers two people and is often preferred by couples. It’s also a good option for business partners. A joint life policy can be cheaper than taking out two single life policies but the provider only pays out once with this arrangement. For example, when the first person passes away, a lump sum is paid to the second person to provide them with financial stability and the cover then stops. This means that the second person isn’t covered so their children or other beneficiaries won’t receive a lump sum upon their death. Taking out two single life policies may be more expensive as a couple but it means that a payment will be made by the insurance provider on the death of each person.
How much does life insurance cost?
The cost of life insurance depends on various factors and, as such, your monthly premiums are calculated on an individual basis. The insurance provider takes your age, the type of cover you require, the policy term, the amount you wish to be paid out, your health, your family’s medical history and your lifestyle habits into account. For example, if you’re a smoker, your premiums are likely to be higher than those for a non-smoker of the same age. A high-risk occupation also increases your premiums.
Whatever your circumstances, our mortgage and protection consultants will search for the best policy to match your needs and affordability. This type of insurance is generally cheaper the younger you are as you’re more exposed to health issues as you get older. One way to try to keep your premiums as low as possible is to make healthier lifestyle decisions, such as losing weight, reducing your alcohol consumption or stopping smoking.
Types of life insurance
There are different types of life insurance to choose from and we’ve detailed the main ones below.
- Level term: This is the simplest type of life insurance. You decide the amount to be paid out upon your death and the policy duration. The pay-out amount stays the same throughout the policy term whether you die after 5 or 20 years, for example. Setting a fixed amount to be paid to your loved ones if you pass away during the policy term means you know exactly how much they will receive although it doesn’t allow for inflation rates. Your premiums also stay the same throughout the policy term. This is useful for budgeting but can be more expensive in the long run compared with other types of life insurance.
- Decreasing term: With this type of life insurance, the cover amount reduces over time as an outstanding debt is reduced. A decreasing term policy is typically used with a repayment mortgage. As your mortgage loan balance decreases so does the amount to be paid out should you die within the policy term. This means if you pass away towards the beginning of the term, more will be paid out to your loved ones than if you die further into the policy term. Whilst your mortgage is usually covered by this type of policy, other finances may not be, such as living expenses and other debts, so it’s important to consider how your loved ones will cope financially when you are no longer around to support them.
- Increasing term: This type of life insurance provides increasing cover over time to allow for inflation. This ensures that the sum paid out to your loved ones is reflected in real terms. As the level of cover increases over time so do your premiums.
- Family income benefit: Rather than receiving a lump sum when you die, this type of life insurance provides your loved ones with a regular income until the end of your policy term. You can opt for an index-linked policy if you prefer so that the pay-outs are kept in line with inflation.
Another type of cover is over 50s life insurance. If you’re aged 50 or above, you can take out this cover without needing to pass a medical check or answer any health-related questions. Your premiums stay the same and, as long as you keep making them, your cover remains in place until you die rather than within a specified policy term.
You may already have a death in service policy via your employer. This benefit means your loved ones will receive a lump sum that’s linked to your salary should you die while still on the company’s payroll. You don’t pay any premiums as this benefit is provided by your employer but, as the amount is usually between two and four times your annual salary, it pays out less than a life insurance policy. The benefit also ends immediately if you stop working for your employer. Therefore, it’s a good idea to consider an additional form of protection, such as a separate life insurance policy.
If you’re ready to take out life insurance, just give us a call on 01322 907 000. Our mortgage and protection consultants – located in Kent, London and Edinburgh – are available to talk you through the different types to help you decide which one is the best fit for your needs. They can guide you on the amount to be paid out to your loved ones and the length of the policy term depending on your circumstances. If you prefer, send us an email at email@example.com or an enquiry via our contact form and we will reply to you as quickly as possible with more information.
What does life insurance cover?
The cover offered differs between providers but, in most cases, your life insurance should cover your death if it results from cancer, a heart attack, a stroke, respiratory issues or natural causes. Some policies cover you when diagnosed with a terminal illness and your life expectancy is less than a year. Your death may be covered if it results from an injury or suicide and you’ve had the policy for at least 12 months. You won’t be covered if your death is caused by alcohol or drug abuse, a high-risk activity, undisclosed issues with your health, an illegal activity or specific conditions detailed by the provider.
You also won’t be covered if you suffer from a chronic illness or complete disability in your lifetime. Other forms of protection can cover you for these issues, such as critical illness cover or income protection, and our mortgage and protection consultants can discuss these with you.
Do you need life insurance?
Having life insurance isn’t a legal requirement when taking out a mortgage but some lenders may insist on it to reduce their level of risk. Even though it’s not compulsory, it’s definitely worth considering if you have someone who relies on you financially. Whether you have a mortgage or other loan, credit cards or other debts, having life insurance in place eases the financial burden faced by your loved ones when you pass away.
Considerations when buying life insurance
The younger you are when applying for life insurance, the lower your premiums will be so take out a policy as early as possible. Be honest when applying for your life insurance cover because you risk jeopardising the pay-out to your loved ones if the insurer discovers inaccurate information when checking your medical history. Speak to our mortgage and protection advisers about combining your life insurance with another policy, such as critical illness cover, as this may be cheaper than if you buy them separately. Another consideration is writing your life insurance policy in trust. That way, your beneficiaries can access the funds to cover any inheritance tax bill that may be due.
You should also check whether the policy has guaranteed or reviewable premiums. Guaranteed premiums remain the same throughout your policy term unless you amend the policy. Reviewable ones, on the other hand, can change when the insurer reviews them at specified times. As an example, the premiums may increase as you get older and, therefore, your policy can be significantly more expensive in the long run compared with one that has guaranteed premiums.
Review your life insurance cover
It’s recommended to review your cover from time to time to ensure it still meets your requirements. Your circumstances may change in the future and these should be reflected in an amended policy. For example, you may go through a separation or divorce, have been made redundant or found a new job, have taken on extra debt, have made changes to your lifestyle or your health may have changed.
Can you cancel your life insurance policy?
You can usually cancel a new policy within 30 days without being charged a cancellation fee. After that, you may be subject to a fee depending on the conditions of your policy. It’s also unlikely you’ll receive a refund for any premiums you’ve paid. You may be tied in for a specific term before you can cancel your policy so be sure to check this before your cover commences.
Once you’ve cancelled your policy, you are no longer covered and you cannot reinstate that policy. Rather than cancelling it, it may be better to ask your mortgage and protection adviser to review your existing policy and amend it to suit your circumstances at that time, whether you wish to reduce or increase your level of cover. If you decide to switch to a different policy, make sure it has already commenced before you cancel your existing one.
Give your loved ones financial protection with life insurance
At Trinity Finance, we understand the importance of protecting your loved ones when you’re no longer around to provide for them yourself. A life insurance policy gives you peace of mind that they can cope after you’ve passed away and ensures they have financial stability at a time when they need it the most.
Our mortgage and protection brokers – located throughout Kent, London and Edinburgh – can discuss the different types of life insurance with you and provide expert guidance to help you shape the terms of your policy. Just give us a call on 01322 907 000 for a simple approach to putting life insurance cover in place, whether you prefer a single or joint life policy, you have pre-existing health conditions or you wish to combine your policy with other forms of financial protection. Our protection consultants will search for the most affordable option that ticks all the boxes for you and ensures your loved ones are adequately looked after in the future.
If it’s after office hours, send your details to us by email at firstname.lastname@example.org or via our contact form. We’ll reply to you as quickly as possible with more information about how we can provide you with a tailored solution to your life insurance needs.