Do you have life insurance in place? A survey suggests that some homeowners are choosing not to take it out because of common misconceptions about how life insurance works says Seb Lewis, Independent Financial Adviser at Pembroke Financial Services.
Seb explains: “Life insurance would pay out a lump sum to beneficiaries if the policyholder passed away during the term. As a result, it can provide financial support to your loved ones when they need it most and ensure they don’t need to make large financial decisions when they’re grieving.
“You can choose how much cover life insurance provides. Often, this is linked to how much your mortgage is. You can also consider other things, such as school fees or day-to-day living costs, to ensure your family would be financially secure if the worst happened.
“You can also select how long cover will last. This is often tied to how long remains on your mortgage or when children will reach adulthood.”
Despite the safety net it could provide, a survey reported in YourMoney suggests that 2 in 5 homeowners don’t have life insurance. It’s a decision that could affect their family’s financial wellbeing.
“Life insurance is something people often think about when making large financial commitments, such as taking out a mortgage. However, it’s not just homeowners that could benefit from appropriate life insurance. If your loved ones could struggle financially if you pass away, it could make sense,” added Seb.
The survey found five key reasons why people don’t take out life insurance, and misconceptions play a role in many of these decisions.
1. “I don’t need life insurance”
A common reason for not taking out life insurance is that some people don’t think they need it.
It can be difficult to think about the circumstances that would mean life insurance is necessary. However, if your partner or children could find themselves financially vulnerable if you passed away, life insurance is something that may provide you with peace of mind.
2. “Life insurance is expensive”
The cost of life insurance varies depending on a range of factors, from the level of cover you want to your age. However, it can often be more affordable than you think. For a young, healthy person, life insurance can be as little as £10 a month.
Seb noted: “The cost of life insurance needs to be considered against the value it adds. If your loved ones would struggle without your income, then life insurance would be valuable in providing you with confidence about their future.”
3. “Life insurance is difficult to set up”
There are some things you will need to spend some time considering when taking out life insurance. For instance, how much cover you need. You will also need to answer some questions and you may need to provide additional information, such as paperwork from your GP.
However, it’s often straightforward to set up and we can help you compare different insurers to find the one that’s right for you. We’ll make the process as smooth as possible and offer support throughout.
4. “An underlying medical condition means I can’t take out life insurance”
If you have an underlying medical condition, it can be more difficult to find life insurance that suits you, but that doesn’t mean it’s not an option.
Some specialist insurers may provide you with the cover you need. Others may provide life insurance that excludes pre-existing medical conditions.
While an underlying condition can mean the cost of life insurance is higher, it may not be as high as you expect and it can still be valuable.
We can offer you support in finding life insurance that meets your needs and answer any questions you may have about what it would cover.
5. “Insurers don’t pay out”
Some mortgage holders wrongly believe that insurers simply won’t pay out if a claim was made. However, data from the Association of British Insurers (ABI) shows this isn’t the case.
Seb commented: “In 2020, £3.4 billion was paid in life insurance claims as 97% were upheld. The average value of a claim was £79,304. These claims could have provided a vital financial injection to grieving families.
“Not disclosing relevant medical information when taking out life insurance is one of the main reasons a claim may not be upheld. It’s important that you provide accurate information.”
Contact us to discuss your life insurance needs
If you want to discuss life insurance and how it can fit into your financial plan, please contact us. We can work with you to understand what cover you would benefit from and put appropriate financial protection in place that reflects your priorities.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.