‘For many, it is priceless’: 5 questions about life insurance answered

Understandably, we might not like to think about difficult things that might lie ahead. But having life insurance in place can be a great source of comfort, as well as financial support when its needed most.  

According to Macmillan Cancer Support, four in five people feel the financial impact of cancer and are on average £900 worse off a month[1]. 

“Life Cover provides peace of mind, allowing us to know money will be available to our loved ones if we were no longer here,” explains Justin Taurog, Managing Director, VitalityLife. “It can also provide extra financial security if we were diagnosed with a serious illness, or if our income were to stop because we need to take time off due to our health.”  

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What actually is Life Cover?

Put simply, it pays out a lump sum to a chosen person or persons in the event of death or terminal illness. Specialist financial protection adviser Matthew Chapman, Commercial Director of Plus Financial, a mortgage and protection advisory specialist, says:

“These funds are often used to pay off your mortgage or to replace the income you bring into the household – thereby providing essential financial support to those you leave behind."  

What sometimes gets overlooked is that there are a range of financial protection products available on the life insurance market.

“Some cover exists for a set term (Term Life), others our entire life (Whole of Life).

It’s crucial to remember some plans pay out while we’re still alive, too. Serious Illness Cover offers a lump sum if someone is diagnosed with a serious illness such as cancer or a heart attack (included as part of a list of named conditions).

Cover can even extend into later life and be used to pay for future care costs (Dementia and FrailCare Cover).

Income Protection Cover, meanwhile, pays a monthly financial benefit should someone be unable to work due to sickness or disability and other examples exist too.”  

Surely, this is a cost I can live without?

In fact, the opposite is probably true. Justin points out that with prices rising “it’s likely savings pots are being negatively affected by inflation and rising energy costs”. That means – providing you can afford the monthly premiums – having a financial safety net in place is an important way to safeguard wealth. 

“Unfortunately, most people grossly underestimate the financial impact of losing someone,” adds Matthew .

“Anyone who has a dependent partner or child will worry about how their family will cope without them. Life cover offers the knowledge that their family will be taken care of in their absence. For many, that is priceless.”

When should someone consider taking out a plan?

“People take out cover at different ages, but it’s worth bearing in mind it typically gets more expensive the older you get,” says Justin. It’s also worth noting that cancelling a plan might come with its own issues.

“If you experience a medical issue after cancelling your cover it could make it difficult, more expensive – or even impossible – to arrange replacement cover later on,” adds Matthew. 

However, if premiums are too much, there may be other options “such as adjusting your plan to reduce the cost”, so it’s worth talking to your financial adviser or insurance provider if this is an issue.

What is a trust and do I need one?

When taking out cover, Justin says customers should always consider putting it into a trust. “When the plan pays out, the money goes straight to the trustees you named in it and isn’t included in your taxable estate.

“So, if you have outstanding debts, like a mortgage, they will then clear your mortgage or pay off an inheritance tax bill, so your family don’t have to immediately sell a property. You also could choose to use some money for funeral expenses or to go to a charity you support.” 

It is not all doom and gloom though. The rewards offered by plans like Vitality’s make every-day life more enjoyable. Justin says: ‘There’s the opportunity, through Vitality’s partners, to save money on things such as gym memberships, as well as enjoy extra perks like handcrafted coffees and cinema tickets from day one. 

“These benefits can help us stay healthier in general, with those who engage with the Vitality Programme (which incentivises positive lifestyle choices) on average having 39% less chance of dying than those who don’t engage[2].” 

How often does life insurance pay out?

The good news is – nearly all the time. What’s sometimes overlooked or not known by people is that the vast majority of claims are paid by the life insurance industry. 99.8% of Life Cover claims were paid by Vitality in 2021[3] (more than £54m). “Life insurers are there to support you at a critical time. And they do,” concludes Matthew. 

Sources:

[1] Cost of living - support for people with cancer | Macmillan Cancer Support

[2]Vitality Health Claims and Insights report 2022

[3]Vitality Health Claims and Insights report 2022