Let’s be honest, 2021 was an extremely challenging year for many of us, both from an emotional and economic perspective because of the COVID-19 pandemic.
This has prompted many Brits to consider taking out life insurance protection for the first time.
But what is life insurance? In simple terms life insurance is a financial safety net for your loved ones if you were no longer around to provide. You decide the cover amount, determine the length of the policy term, and pay a monthly premium to receive the protection.
The above summary is a simplified version, but in reality, many people are confused by all the insurance jargon, which can lead to many misconceptions.
We asked Cheshire based life insurance broker Reassured Ltd, to help clarify the most common life insurance myths that they encounter; empowering you to make a fully informed decision.
- COVID-19 has made it impossible to secure affordable life insurance
False. In truth, the COVID-19 pandemic (up to now) has had very little effect on life insurance. You can still secure cover, premium costs have not increased, and insurers are still paying out on claims at pre-pandemic levels.
The only significant change is that you may now be asked some specific COVID related questions as part of the application. However, you can still secure life insurance even if you’ve had Coronavirus previously.
Even if you are currently testing positive for COVID, it is unlikely that you will be declined outright. It is much more likely that your application may be postponed until you have made a full recovery.
- Life insurance cover is expensive
Life insurance for the vast majority of people is actually very cost-effective. For example, if you are young, not overweight, a non-smoker and in good health you could secure approximately £150,000 of cover from under 15p a day.
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 premium.
Therefore, your age, medical history and smoking status are key criteria that insurers use to calculate your premium. 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.
- Insurers do not pay out on claims
False. According to data from The Association of British Insurers (ABI), 98% of protection claims are paid out successfully and only in very rare circumstances will an insurer deny a claim. This equated to £6.2 billion in pay outs.
Of the 2% of claims not paid out, the most common reason was non-disclosure. This is when the policyholder withholds key information or lies during the application, probably in an attempt to secure a lower premium.
- Stay-at-home parents do not need life insurance
Many households only take out life insurance to protect the breadwinner who brings in a tangible monthly income. However, if budget allows it is generally a good idea to also protect the stay-at-home mum or dad too.
Think about all the unpaid jobs a stay-at-home parent fulfils every single day. Now consider if they were no longer around how these multiple roles would be fulfilled; childcare, dropping the children at school, cooking, cleaning…
Research suggests that the unpaid work of a stay-at-home parent equates to over £100,000 a year.
- You require life insurance to secure a mortgage
False. Whilst taking out life insurance to safeguard the family home is usually a great idea, it is not a legal requirement in the UK.
For most of us a mortgage is the largest debt we will ever encounter. Ask yourself, if you were to pass away, could your partner afford the mortgage repayments long-term?
A life insurance pay out can provide the necessary funds to pay off the mortgage, ensuring your loved ones can remain in their home at a difficult time.
We hope the above article has helped debunk some common myths surrounding life insurance and detailed the key benefits.
Unfortunately, recent times have highlighted just how fragile life can be. Life insurance is there for a worst-case scenario and whilst we hope a claim is never required, having the reassurance that your family will be taken care of financially does provide precious peace of mind.
Here is to a great 2022 and beyond.