November 25th 2016

8 myths about life insurance

One in four breadwinners in the UK – that’s around 8.5 million people – don’t have life insurance, according to research by MoneySuperMarket.com. But, have they considered what this might mean for those left behind?

It’s not easy thinking about a time when you won’t be around anymore. But rather than tiptoeing around the elephant in the room, it can be more practical to tackle the situation head-on: by putting a life insurance policy in place to protect your loved ones when you’re gone.

In life, your financial decisions are typically about you. But life insurance, as with a will, is not about you: it’s about the people you might leave behind.

Whether for the sake of your spouse or children, life insurance policies can never replace you. However, they can make a loss an easier burden to carry from a financial perspective. Can you imagine if you had no life insurance policy in place and your spouse lost you and then the house you lived in together because they could no longer afford the repayments without a second income?

Equally, a life insurance pay-out can offer opportunity: your spouse and children might be able to do something they would have never been able to afford otherwise, such as go travelling, start a business or study.

There are a lot of myths surrounding life insurance: some people think that you’ll get credit checked in order to take out a policy (you don’t), while others think health problems mean they can’t get insurance (it might take longer and cost more, but typically this is still a possibility).

Here’s our pick of some of the biggest myths surrounding this type of insurance.

Myth 1 – You’ll have to have a medical assessment
It’s unlikely that this will happen unless you’ve had significant health problems in the past. If you have had health problems, it’s possible that the insurer will request your medical records. Don’t worry, you’ll have the chance to look over these before the insurer receives them.

Once you’ve got your policy, there’s no need for annual health checks by your insurers, either.

Myth 2 – Couples should take out a joint policy
Joint life insurance policies are nearly always cheaper than getting two individual policies. But with a joint policy, the cover is usually less conclusive.

If you have a joint policy, it will only pay out once, so the policy would end if one of the insured died. You’d likely be older when this happened, so a new policy would be more expensive if you wanted to insure yourself again. And complications can obviously arise if the couple break-up.

Myth 3 – Life insurance pay-outs are tax-free
It’s possible for life insurance pay-outs to be tax-free, but there’s no guarantee that they will be. It’s possible to make sure they are by getting the policy ‘written in trust’. When a policy is written in trust, the proceeds of the policy are not usually taxed.

Myth 4 – You’ll get a lump sum if you live
Sadly, this is not the case, and you don’t get a lump sum if you reach the end of the policy – if it has an upper age limit, for example – and are still alive. This is a policy to protect the financial interests of your loved ones if you die, not an investment for your own future.

Myth 5 – You could get two pay-outs if you have life and critical illness insurance
This is incorrect as these type of policies only pay out once. So if you are diagnosed with a critical illness and get a lump sum, the policy would be over, so it wouldn’t also cover you as life insurance cover should you then pass away.

Myth 6 – You don’t need life insurance if you don’t work
Although you might not be contributing to the household financially, your death could still have financial implications for living relatives. For example, if you look after the children during the day, your spouse will now have to find the money to cover this childcare, meaning they could still struggle financially after your death even if you didn’t provide a second income.

Myth 7 – I don’t need life insurance, I can just invest
Typically unless you have a large pool of wealth, you are unlikely to make as much investing as would be paid out in the case of a life insurance claim. Often people dip into their personal savings, too, so investing in insurance can help you avoid this pitfall.

Myth 8 – Life insurance is expensive
Consumers typically overestimate the cost of life insurance by three times its actual cost.

As you get older the cost if life insurance increases, so it can make sense to invest in a policy when you’re younger that covers you at a lower premium for the rest of your life.

Life insurance can be a great risk management tool to decrease the financial risk of you passing on for your family, but it’s important to break through the common myths surrounding it.

For a free review of your life insurance protection, contact the experts at Hine Financial Services on 0161 438 0000.

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