2021 proved to be an extremely challenging year, both from an emotional and an economic perspective because of the COVID-19 pandemic.
This has led many people within the UK to consider taking out life insurance for the very first time.
But what is life insurance?
Life insurance is simply financial protection for your loved ones if you were no longer around to provide. You choose a cover amount (the sum assured), set the length of the policy (the term) and pay a monthly fee (the premium).
The cost of life insurance is largely calculated based on the level of risk you pose to the insurer – or put another way, the greater the likelihood of claim and the higher the sum assured, the more your monthly premium will be.
The above life insurance summary is a very simplified version, and many are confused by the jargon and common misconceptions that exist.
We asked Hampshire based life insurance broker, Reassured, to debunk the most common life insurance myths they encounter…
1) MYTH 1 – Life insurance is very expensive
Despite common misconceptions, life insurance can actually be very cost-effective. If you are young, a non-smoker and in good health you could secure approximately £200,000 of cover from around 20p-a-day.
Your age, medical history and smoking status are key criteria that insurers use to calculate your premium. In order to lock-in the lowest possible premium for an extended term it is usually a good idea to take out cover whilst you are still young.
2) MYTH 2 – Life insurance providers don’t pay out
Only in very rare circumstances will an insurer deny a claim.
Data from The Association of British Insurers (ABI) stated that in 2020, a mammoth 98% of all protection claims were paid out, which totalled £6.2 billion.
The most common reason for a claim being refused is as a result of non-disclosure. This is when the policyholder either lied or withheld key information during the application process in order to secure a lower premium. There is, however, life insurance with no medical exam policies out there.
3) MYTH 3 – I am a stay-at-home parent and don’t need life insurance
Often families only take out life insurance to protect the breadwinner who brings in a tangible income each month. However, if budget allows it is generally a very good idea to also protect the stay-at-home parent too.
Take a second to think about all the unpaid jobs a stay-at-home mum or dad fulfils each and every day. If they were no longer around, would you need to pay for additional childcare or perhaps you would have to cut down on your working hours? What about school drop-offs, the cooking, the cleaning…
Research suggests that the unpaid work of a stay-at-home parent equates to an astonishing £108,937 a year.
4) MYTH 4 – I need life insurance to get a mortgage
Whilst taking out life insurance in order to protect your mortgage is usually a good idea to safeguard the family home, it is not a legal requirement.
A mortgage is probably the largest debt you will have in your lifetime. Ask yourself, if you were to pass away, could your partner afford the mortgage repayments?
A life insurance policy could provide the necessary funds for the mortgage to be paid off in full to ensure your loved ones can remain in their home at a difficult time.
Please note, many mortgage providers will work with a life insurance partner and encourage you to consider purchasing cover through them. However, the most effective way of securing the cheapest premium is to compare multiple quotes from a variety of providers, as costs can vary.
5) MYTH 5 – I will need to undergo a medical exam
An insurer is very unlikely to ask you to undergo a medical exam. They will only request one if you have disclosed a severe pre-existing medical condition or another high risk factor, such as morbid obesity, during the application.
In the vast majority of cases, the medical questions asked during the application will provide sufficient information on your health for the insurer. One exception is over 50s life insurance plans, where you will not be asked any medical questions at all and acceptance is guaranteed (if aged 50-85 and a UK resident).
We hope this article has helped dispel some common misconceptions surrounding life insurance.
If the last couple of years have taught us anything it is that life can be extremely fragile. Life insurance is there for a worst-case scenario and whilst we hope we never have to cash in our policy, having the reassurance that your family will be taken care of financially does provide invaluable peace of mind.