The COVID-19 pandemic has been enormously challenging both mentally and economically for many people up and down the UK. What this period in our history has highlighted, is just how fragile life can be. This in turn forces us to more seriously consider what we would leave behind if anything were ever to happen to us. This is especially poignant if you have a family who depend on you. The most obvious form of financial protection for a family is life insurance. How does life insurance work? You pay a premium each month for cover and if anything were ever to happen to you during the policy term, a pre-determined cash pay-out is made to your loved ones. This payout is commonly used to cover the mortgage (enabling your loved ones to remain in their family home), pay for childcare, provide an inheritance and meet future living costs. How has COVID-19 impacted life insurance? Interestingly, and somewhat surprisingly, Coronavirus has not to date had much of an impact on the life insurance sector – which has seen a significant spike in sales and interest as people seek to secure their loved one’s financial future.
- You can still secure life insurance cover
- Monthly premiums have largely been unaffected
- Insurers are still paying out, (even if you pass away as a result of COVID)
The only significant change has been to the application process. Now you will be asked COVID specific questions, such as:
- Do you have COVID-19?
- Have you had COVID-19?
- Have you been required to self-isolate?
- Have you displayed any symptoms?
If you have an existing life insurance policy that pre-dates the pandemic, then your cover will be completely unaffected as the cover and the cost is determined at the point of application. If you have tested positive for COVID-19, then your application is likely to be postponed until you make a full recovery, but you are unlikely to be declined outright. Lastly, in order for your loved ones to fully benefit from your selfless investment it is vital to be open and honest on your application. If it is deemed, that you lied or without information your policy may be voided, and your investment wasted.
Other life insurance considerations Now that we know you can still secure affordable life insurance during the pandemic and that it will pay out if anything were to happen to you, it’s important to look at some other key considerations. Joint or single cover?
When in a long-term relationship most couples automatically choose a joint life insurance policy, which covers both you and your partner simultaneously. However, this is not always the best choice. Whilst joint cover is approximately 25% cheaper compared to two single policies, it will only offer one pay out, usually on the first death. Thereafter the policy expires, leaving your surviving partner without cover.
If you take out two single policies, whilst you will need to pay two monthly premiums, you could benefit from two separate pay out – thus effectively double the coverage. This may be vital if you have young children.
Write your life insurance in trust
Did you know that by writing your life insurance in trust you can avoid paying 40% inheritance tax?! This is because when your life insurance is written in trust it does not form part of your estate and therefore is not subject to inheritance tax. Another key benefit is that your loved ones will not have to wait for probate to be granted and so they will receive the life insurance pay-out funds faster. All major insurers allow you to write your life insurance in trust completely free of charge.
Multiple policies?Unlike other forms of insurance, it is perfectly legal to have multiple life insurance policies. For example, you may want to take out a decreasing term policy to cover your repayment mortgage and perhaps a funeral plan to meet rising funeral expenses later in life. This is obviously subject to your available budget. As well as life insurance there are other policy options available which you may want to consider. Income protection Another cost-effective but less well-known option is income protection insurance.
Income protection provides a tax-free monthly income if you are unable to work due to an injury or illness. The funds can be used to cover mortgage repayments, utility bills and livings costs.
The cover amount is an agreed percentage of your pre-tax income – the higher the level of cover, the more your premium will be. Family income benefit, or FIB, is a term-based policy option much like decreasing term life insurance. However, instead of paying out a cash lump sum, FIB instead pays out a monthly tax-free income for the remainder of the policy term if you were to pass away. A key benefit of this cover is that the income is tax-free and the regular payments can help the family’s budget for long-term family living costs, without the pressure of investing or managing a large lump sum. Because the risk to the insurer reduces over time, this is a very affordable form of cover. How to find the best cover? Whichever policy option you choose, now is a great time to secure cover, if you have not already. But what is the best way to find the perfect family cover? The most important thing is to compare multiple quotes, as prices can vary wildly between insurers due to different underwriting processes. This is particularly true at this time of the pandemic. The policy term can be up to 40 years, so even a £1 saving per month over the entire lifetime of the policy could add up to a significant sum of money. Comparison websites are a good way of comparing multiple quotes any time of day or night. There is usually no cost for using their services as they earn a commission direct from the insurer. Another really good option is to use an FCA regulated life insurance broker, such as Reassured. They offer a completely free service and can compare both different policy types and multiple quotes. They are also able to guide you through the application process and help write your policy in trust if you require. Finally, the most critical factor when it comes down to the cost of cover is your age. The young you are, the lower the chance of the insurer having to pay out and thus the cheaper your premium will be. As a result, it is best to arrange cover as young as possible so that you can lock in very low premiums (20p-a-day) for decades to come, comprehensively protecting you even when your circumstances change (first home, getting marriage, having children).
