Do you need life insurance?

canstockphoto17959883There are all sorts of reasons to think about getting life insurance. Whether you have a partner, children or other relatives who you wish to support after you have died, or you are simply looking to avoid having your family deal with the expense of your funeral, many people can benefit from this form of insurance. But is it really something that you need? Let’s take a closer look at life insurance and who should have it.

How do life insurance policies work?

Life insurance policies either pay out a lump sum or make regular payments to dependants on your death. They are generally put in place to ensure that your family is financially secure after you have passed away.

What is your marital status?

It is arguable that for single people, life insurance is a relatively unnecessary expense. You need to remember that life insurance is generally taken out to cover costs that you would cover if you were still alive. If you are single and live in a property, clearly you will no longer have a need for that property if you have passed on.

However, if you are the only earner in a family, your partner and children may rely upon the money that you provide. In this case, your death will present hardship for them and life insurance will effectively prevent them from suffering financially from your death.

Who is depending on you?

For the majority of people who take out life insurance, it’s done to ensure that a partner or children are not placed in a difficult financial situation if they die. Even if both partners in a relationship work and pay towards the household, the burden of your death might make it impossible for your partner to stay in the same property and support the family without you.

Alternatively, if you have already paid off your mortgage and you perhaps have grown-up children who no longer live with you, life insurance is probably unnecessary. While your death would clearly cause emotional distress to your loved ones, it would not place them in financial trouble.

You could cut your inheritance tax bill

One interesting reason that some people consider life insurance is to cut their tax bill. This is especially true if you are concerned about inheritance tax. This is because when you die you will be charged inheritance tax at 40 per cent of your assets over £325,000 – and remember that your family home is included as an asset.

That means that, for example, if your house is worth £1m when you die, your family will be charged a bill of 40 per cent of the £675,000 (the total over the £325,000 threshold). This means that simply to continue living in the home, your family would need to pay an inheritance tax bill of £270,000.

For many people this is simply unrealistic and unaffordable. However, if you had taken out life insurance, the policy would pay a lump sum on your death which can either pay off or contribute to the inheritance tax bill.

What affects the premiums?

As with all forms of insurance – the greater the risk to your insurance company, the more you will have to pay. With life insurance that means that you insurance premiums are affected by your age and your health, as well as aspects of your lifestyle. If you smoke heavily or drink regularly, this will mean that you need to pay more to take out the policy.

Do you already have it?

It may be the case that you already have life insurance in place. If you work for a business that offers employees death-in-service benefits, they may continue to pay your salary to your family in the event of your death. Given that this is likely to be your major source of income it means that you probably won’t need to take out an additional policy. Check through the terms of your employment to find out if you are already covered.

Would another type of insurance be preferable?

It might be the case that life insurance isn’t actually the ideal option for you. There is a range of different types of insurance that may be better in your situation. For example, income protection insurance pays regular payments to you and your family if you cannot work because you have become injured or seriously unwell.

Talk to a reputable insurance broker and they will be able to give you excellent advice on which kind of insurance policy could be right for you.

Article provided by Mike James, an independent content writer in the financial sector. For the information in this post, Kent-based independent health insurance broker Flexible Health were consulted.

 

Lying on Your Life Insurance Application: What is a Lie?

canstockphoto8654543Unfortunately, in some cases, those who are looking into making a life insurance purchase are doing so with a bit of reluctance. They understand its necessity and benefits, but the idea of factoring it into their budget brings on migraines; especially, if they have any kind of significant medical history, or ongoing medical struggles.  You can click here to visit Suncorp directly.

This is where scribbling a few little white lies down on their life insurance application becomes a temptation—after all, when one little lie can possibly save you a few hundred bucks a month, what’s the harm?

What most don’t understand is that there is a lot of harm that can be caused from committing insurance fraud. I know what you might be thinking… “I mean, that’s an exaggeration, right? It’s not really insurance fraud, right? …. RIGHT?!”

It is! Sure, it will save you money while you’re alive and well, but what happens when you pass away and the very purpose of your life insurance policy comes to fruition; who pays the price? Your loved ones. That is, if you don’t get caught right from the get-go.

Before you hyperventilate, it’s important to understand what is and what isn’t a lie. In some cases, there is such a thing as just having bad luck and poor timing.

A WARRANTY LIE

This is any item on your application that can be filled in with full guarantee from the applicant that it is the whole truth and nothing but the truth. With these items, there’s no wiggle room—if it’s determined to be a lie, there’s going to be almost nothing you can say to get out of it.

This kind of lie would be to note on your application that you’ve never had any kind of previous heart condition, when you in fact had open heart surgery a month before your application.

Typically, you won’t succeed in getting away with a lie on one of these items, either. They are extensively investigated by the insurance company when you apply and if you’re caught, you will not only have your application rejected, but a record of this offense will be filed with the Medical Insurance Bureau (MIB: mibgroup.com), which will alert any other insurer that you might apply with.

If you do make it past the application phase with the lie and it’s discovered later, your contract will be voided and your premiums refunded.

A REPRESENTATION LIE

This is any item on your application that is filled in only with the applicant’s fully educated belief to be true. To the best of your ability, you know this to be true, but there is the possibility for human error, or discovery that it could be false.

Using the same example as before, this type of lie would occur if you noted on your application that you’ve never had any kind of previous heart condition, and then a week later it is discovered that you did all along (a first diagnosis).

When this kind of lie occurs, with no deliberate intent to fool the insurance company, there typically won’t be repercussions, only adjustments. From insurer to insurer, it will be different; some policies come with a contestation period attached and they will alter your policy and premiums according to what your new condition is. Others, will only look at your health at the time of the application and as soon as it’s accepted, you’re free and clear.