Life insurance policies are designed to be there in your time of financial need, often when personal or family tragedy has struck. While you never want to have to think about needing your policies, if you were to need them, it is imperative these policies have been set-up correctly. The last thing you want when making a claim is to find out you’re not covered when you thought you were.
As mortgage and life insurance brokers, we have a legal and moral obligation to offer life insurance products to all clients using our services. We must ensure our clients are aware of the cover available and aware of the risks if they’re uninsured. This is because we offer an advice service on the best products to take. When searching on a price comparison website, you’re not getting any professional advice. In the industry, this is called an execution-only service and these sites are not liable for any decisions you make if they later turn out to disadvantage you.
After discussing life insurance with brokers, some choose to go away and see if they can find it cheaper themselves online. While we understand this is natural in the 21st century, the products you’ll see on a price comparison site are the same as those we have access to so you’re unlikely to find the same cover at a cheaper price! Occasionally people will believe they’ve found something cheaper, but this is almost always because it is not the same. There are so many variables that can be adjusted on a life insurance policy, so it is important your cover is right for you.
Variables within life insurance policies include the following:
Guaranteed vs Reviewable Premiums – Monthly premiums on a life insurance policy can be fixed at outset for the duration of the policy (guaranteed) or subject to change throughout the term of the policy (reviewable). While reviewable premiums are often cheaper initially, they will rise throughout the term of the policy meaning you will likely end up paying more overall.
Age-Banded – Applicable for Income Protection policies. Age-banded cover means the monthly premiums are set to increase at specified intervals throughout the term of the policy. While age-banded cover often starts out cheaper, it is generally more expensive long-term as the premiums increase.
Own-Occupation vs Suited-Occupation – Applicable for Income Protection policies. Income protection pays a monthly benefit to replace your income if a doctor signs you off work due to accident, sickness or disability. Essentially, an own-occupation policy will pay out if you cannot do your job whereas a suited-occupation policy will only pay out if there is no job that you can reasonably do. For example, if you’re a brain surgeon who loses a hand, you could still work many other jobs so the insurer would not pay out on a suited occupation policy. While a suited occupation policy appears considerably cheaper, it requires you to retrain in a new role where you’ll potentially be earning considerably less.
Critical Illness Conditions – Knowing what critical illness conditions are covered in your current or in a potential policy is crucial. Standard policies cover common illnesses/events such as cancer, heart attack, stroke, paralysis, dementia, etc. Enhanced policies cover a greater number of conditions and there are options to add critical illness cover for any current and future children too. Different providers cover different critical illness conditions so it’s important to know what you’re actually covered for.
Level or Decreasing – Standard Life Insurance policies and Critical Illness policies can be arranged on a level or decreasing basis. Level means the amount you’re insured for remains the same throughout the term of the policy; decreasing cover means the amount you’re insured for reduces throughout the term of the policy. Because of this, decreasing cover will always be relatively cheaper. While a decreasing policy is suitable to cover a repayment mortgage, you would need a level policy to cover an interest-only mortgage.
Short Payment Period – Applicable for Income Protection policies. A short payment period means the income protection will only pay out for a specific period from the onset of a claim rather than until the end of the policy term. The short payment period can be set at 1-5 years and then after this, the income will stop. Short payment plans certainly have their place, but their suitability depends on your circumstances.
Deferred Period – Applicable for Income Protection policies. The deferred period represents the time between being signed off work and the income protection policy first paying out. It is set to match the duration of any sick pay you receive or how long you could get by without an income. The longer the deferred period, the cheaper the policy but having a 12-month deferred period is no good if you could only survive 3 months without an income.
The examples in this blog are why we recommend you always source your life insurance through a qualified professional who can advise you properly. We’re not saying it just to get your business; we’re saying this to prevent you taking out substandard insurance that doesn’t do the job when you desperately need it. Using our services doesn’t cost you a penny either as, just with our mortgage advice, we don’t charge fees on life insurance. All advisors get paid a commission payment from the insurance provider for placing your policy with them so we don’t feel a need to charge you on top of this! If you want to know more about life insurance products or want us to check the suitability of your current cover, please get in touch.