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The Life Insurance Market
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When you take out a life insurance policy, you can cover yourself in the event of death and you have the option of adding critical illness cover.
Adding critical illness to your policy does bump up your premium, however statistics show we are far likely to be ill than die. So why do so many of us still only take life cover?
Most policies pay out a lump sum, on death or diagnosis of an illness, if you chose to have critical illness cover, which ever happens first. However, managing a lump sum isn’t easy for all of us. For instance if you have a policy for £250,000 of life cover and/or critical illness cover over 20 years and you die in year 2 of the policy. This means your loved ones will receive £250,000, which is great but this amount needs to last 18 years! If we break it down, this amount would work out at £13,889 per year and £1,157 per month! Doesn’t seem as much when you look at it in this way. Those of us leaving behind young children really need to consider whether a lump sum payout would be right for the family. Part or all of the payout would need to be invested to ensure there is sufficient money until the children reach the age of 18
The other option is to take out a policy which pays a monthly or annual income to your loved ones. How would this work? Well you would need to think of a monthly amount you feel your family would need if you were no longer around. For instance, lets say we need £2,500 per month over 18 years, till all my children are over the age of 18. If anything happened to you in year 1 of the policy then the family will receive £2,500 per month, tax free over the next 17 years, which equates to £510,000 in total payouts over the 17 years. Therefore not only is the monthly income more manageable, it also provides over double the cover!
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Should all companies selling protection products such as life insurance, critical illness cover and income protection be regulated?
The general belief held by consumers is probably all companies are.
However, if the person or company you speak to offers you no advice and the focus of the conversation is around price then the company you’re talking to is more than likely not regulated. What does this mean for a consumer? Well, if you ever needed to claim on your policy and a dispute arose or if you are sold the wrong product for your circumstances then unfortunately you wouldn’t be able to complain to the FSA.
Therefore, seeking advice won’t only ensure you have the right protection but it will also mean you’re safe guarded against any disputes with your insurer.
LifeSearch offers free advice and you’ll have your own dedicated adviser. Don’t buy life insurance off the shelf, get advice and make sure you have the right cover for you and your family
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