Life insurance – The 5 key considerations post-COVID 19

Collaborative Post

The unprecedented impact of the COVID-19 pandemic has led to a surge of interest in life insurance. According to recent research my comparethemarket.com sales have increased 18% since the first lockdown. Life insurance is essentially financial protection for loved ones if you are no longer around to provide. You choose a policy type, a cover amount (sum assured) and how long you wish to be covered for (the term) – you then pay a premium payment each month to benefit from the cover. The cost of your premium is calculated based on the level risk you pose to the insurer, or put another way, the likelihood of a claim. The greater the risk, the higher your premium.If anything were to happen to you during the term of the policy, a cash lump sum is paid out to your loved ones. These funds are typically used to cover the mortgage, meet family living costs, provide an inheritance and pay rising funeral costs.

But what are the key considerations if you are thinking of taking out life insurance in a post-COVID world?

1. Always compare quotes 

Regardless of your personal circumstances and available budget, it is always vital to compare multiple quotes. The reason being the cost of monthly premiums can vary wildly between insurers, due to different underwriting processes, and with insurers tweaking their application criteria because of COVID, this variation in price has become even more pronounced. Effective ways of comparing multiple quotes include comparison websites or an insurance broker. If you need help choosing the right policy type and being guided through the application process, an FCA-regulated broker is generally a good option. Usually, a broker will offer their services free of charge, as they earn their money via a commission direct from the insurer. 

2. Free Welcome Gifts 

Above I have mentioned the benefits of using a comparison website or broker, however insurers would much rather that you bought a policy direct from them, missing out the middleman.Most providers incentivise this by offering free welcome gifts with their life insurance policy. Commonly this takes the form of an Amazon, M&S or Argos gift voucher, ranging in value from £50 up to £100. Usually, the value of the gift is dependent on the cost of your monthly premium. The higher the premium, the greater the value of the gift card.

Whilst, a £100 Amazon gift card may seem appealing in the short term, it is important to remember that a policy term can last up to 40 years! And so even a small saving on your premium each month can add up to a significant sum over the lifetime of the policy. Therefore, ensuring you secure the right policy, at the best price is the most important consideration.

Life insurance broker Reassured Ltd have written an article researching the best free gift offers currently available, if you want to save time reviewing these. If your quotes are all very similar in price, then why not go for the best free welcome gift?

3. Joint Policy or 2 Separate Policies?

If your budget is tight, you may want to consider a joint life insurance policy, which is approximately 25-30% cheaper compared with two separate policies. Here two lives are covered simultaneously by one policy, however it will only ever provide one payout, after which the policy expires.

Whereas if you have two single policies your family could potentially benefit from two separate payouts and would not leave the surviving partner older and without cover.

If you have children who are reliant on you financially and you can afford it, it is usually better to take out two separate policies and benefit from double the coverage.

4. Write your Policy in Trust (Avoid 40% inheritance tax and probate)

You may be surprised to learn that there is a way of ensuring that the proceeds from your life insurance payout don’t form part of your estate, therefore avoiding 40% inheritance tax! The answer is writing your life insurance in trust. When you write your life insurance in trust you pass over the rights of your policy to a trustee/s to administer on your behalf, much like the executor of a Will. By doing this, because the funds avoid forming part of your legal estate, your loved ones do not have to wait for probate to be granted before the funds are released, meaning a faster payout.

It is free to write your life insurance in trust and therefore it is surprising that only around 6% of policyholders do so. A broker can help guide you through the trust application process should you require help.

5. Health, Wellbeing and Age 

As mentioned above, the cost of your life insurance is calculated based on the level of risk you pose to the insurer. But there are things you can do as an individual, which can help you pay as little as possible for your family’s financial protection.

Age – Your age at the point of application is probably the most influential cost factor. As a general rule, the younger you are, the cheaper your premiums. For example, a non-smoker in their early 20s could secure approximately £200,000 of cover for just 20p-a-day.

The thing with life insurance is, many people only consider taking it out after a significant life event, such as having a child, taking out a mortgage or the loss of a loved one. If you can be proactive and take out cover as young as possible, you could lock in a super-low premium for decades to come, covering you financially however your life evolves.

Smoking status – Another very influential factor is your smoking status. As we know, smoking is bad for your health and increases the likelihood of certain illnesses, such as cancer and heart disease.

As a result, the cost of your premiums will increase, and what’s more as you age this hiking of premiums accelerates. For example, a smoker in their 30s could pay approximately a third more for their cover than a non-smoker, however a smoker in their 50s is likely to pay double.

Therefore, another great way of lowering your premium, and more importantly improving your health, is to quit or cut down on your smoking.

Weight/BMI – Being overweight is also closely linked to certain medical conditions and therefore increases your premiums. So, losing weight, especially if you are severely overweight, can help save you money on your life insurance.

Non-disclosure – The above may lead you to believe that it would be a good idea to be flexible with the truth during your application, in order to secure a lower premium, (this is known as non-disclosure). However, by misleading the insurer you could actually invalidate your policy, rendering your selfless investment a complete waste of money. More importantly, this could leave your loved ones financially vulnerable. 

Something to think about?

If the last 2 years has taught us anything, it is that life can actually be extremely fragile. The pandemic has actually been the trigger for many to consider taking out life insurance for the first time. That said, for many others, life insurance is one of those things where you only consider it when you actually need it, by which time it is often too late. Therefore, it is a good idea to be proactive and prepare for a worst-case scenario as young as possible, factoring in the key considerations above, comparing quotes, free welcome gifts, writing your policy in trust…and then get on with the fun things in life safe in the knowledge your family’s financial future is secure.