- Will life insurance pay out for COVID-19?
- What if I have COVID-19?
- Has the application process changed as a result of the pandemic?
- Have life insurance premiums increased post COVID?
- Can you have more than one life insurance policy?
- Is a life insurance pay out subject to 40% inheritance tax?
- Is joint life insurance a good idea?
Life insurance FAQs 2021
The last 18 months has shown us all just how fragile life can be on occasions. As a result, this has highlighted the importance of having the necessary financial protection in place for a worst-case scenario, ensuring you can cover mortgage repayments, meet family living costs, put the children through university, provide an inheritance, clear any debt etc.
As a proud mum of 4 young children myself, this is a very difficult but necessary subject to give consideration.
The COVID-19 pandemic has initiated a surge in life insurance interest here in the UK. In turn, this has raised a number of questions from new applicants.
We asked the UK’s leading life insurance broker Reassured to run through the most common questions they are encountering? Read on for their Life insurance FAQs 2021.
Will life insurance pay out for COVID-19?
Yes. If you pass away as a result of COVID-19, it is still possible for your beneficiaries to receive a full pay out and benefit from your selfless life insurance investment.
A claim will only be denied in two scenarios:
- A pandemic clause is written into your policy – a small percentage of older policies include a pandemic clause, which could mean a pay out will not be issued.
- Non-disclosure - if you pass away due to COVID and it is established that you had the virus at the point of application, but it was not disclosed, insurers can deny the claim. As a result, you may want to take a Coronavirus test before the application process. This way there can be no confusion as to whether the virus was present.
As long as all the correct information was presented at the point of application, it is completely possible for your loved ones to receive a successful pay out.
What if I have COVID-19?
It is still possible to purchase a life insurance if you have COVID, but there is likely to be a delay until cover protection can commence.
It is a common misconception that you will automatically be declined cover due to testing positive. However, an insurer is much more likely to postpone your application until you have made a complete recovery.
How long the postponed period is, depends on the individual insurer. Some providers may ask you to wait a matter of weeks, whereas for others it could last a number of months.
Has the application process changed as a result of the pandemic?
In most cases, the answer is yes. The vast majority of insurers will now ask COVID-related questions as part of the application process.
Questions such as;
- Have you ever tested positive for COVID-19?
- Have you been in close contact with anyone who has tested positive?
- Are you displaying any COVID-19 symptoms?
- Have you been asked to self-isolate?
It is important that you are completely open and honest when you answer these questions to make sure your cover is fully valid.
Have life insurance premiums increased post COVID?
The cost of life insurance is calculated based on the level of proposed risk you present, (or put another way the likelihood of a pay out). What’s more, every insurer has a different underwriting process and so costs naturally differ.
From our experience, at the time of writing this article, the COVID pandemic has surprisingly not had a significant impact on the cost of monthly premiums.
The best way to ensure you secure the right policy at the best available price is to compare multiple quotes. You can source different quotes yourself, although this can be quite time consuming.
Other, more time-efficient methods include, using a reputable comparison website or an FCA regulated broker.
Can you have more than one life insurance policy?
Yes absolutely. Unlike car and home insurance, it is very possible to take out multiple life insurance policies simultaneously.
In fact, as our life circumstances change (i.e. take on a larger mortgage or extend the family) it often makes sense to take out fresh cover.
It is commonplace to take out term-based life insurance to protect the mortgage/family home, which for most will be the largest financial commitment we are likely to ever have. Then in later life, to cover such financial responsibilities as rising funeral costs or to provide an inheritance, people often secure an over 50s plan or perhaps a prepaid funeral plan.
Life insurance brokerage Reassured have written a comprehensive article on taking out multiple policies if you require additional information.
Is a life insurance pay out subject to 40% inheritance tax?
It depends. By default, any proceeds generated from your life insurance policy will form part of your legal estate and is therefore subject to inheritance tax.
Anything exceeding the £325,000 threshold is taxable at 40%, (your estate also includes any property in your name, savings and possessions).
However, there is a way in which you can avoid your life insurance being subject to IHT – writing your policy in trust.
When you write your life insurance in trust it avoids forming part of your estate. As a result, your loved ones will not have to wait for probate before benefitting from your policy, so they will receive the funds faster.
You will need to sign over the rights of your policy to a trustee to act of your behalf and distribute the proceeds, much like the executor of a Will.
At Reassured, we can guide you through the trust process, without charging you a penny.
Is joint life insurance a good idea?
A joint policy can be a good idea, but it really depends on your individual circumstances.
The main benefit of joint life insurance is that you will save approximately 25% compared to paying for two separate individual policies - great if you are on a tight budget.
That said, whilst you will only pay one monthly premium, a joint policy will only ever provide one pay out, (usually upon the first death). Also, once a pay out is issued that policy expires, often at a stage in your life when premiums are higher.
In contrast, if you take out two single policies, although you will have to pay two monthly premiums, you will be entitled to two separate pay outs and therefore double the coverage.
Lastly, if your relationship breaks up having a joint policy can become a little problematic as you cannot split the policy.
We hope the above has helped answer some of your key life insurance questions.
In summary, despite the severe challenges of COVID-19 it is still very much possible to get affordable life insurance cover. From approximately 20p a day you could secure £200,000 of cover.
The most important consideration is to compare multiple quotes as costs can vary wildly between insurers.
So, why not seize the day and secure your family’s financial future, regardless of what the future may hold.
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