Family Protection - Reviewing Life and Health Insurance

May 2020
Family
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The Covid 19 emergency has given us all a sober reminder that we are not invincible and that in times of crisis protecting our families is our number one priority. 

The financial impact of this health crisis has affected families in different ways. Some may have sadly lost a loved one who was a wage earner or carer; others may have been made redundant and lost the benefits provided by their former employer; many may have less income available than usual; while those who have maintained their health and employment may be uncertain about their future.
 
Here we look at the part insurance can play in providing financial resilience to families and how a review may highlight gaps in cover which can be filled, and ways costs savings may be made. 

Q. Will my policies pay out if I die of Coronavirus? 
A. Existing life and health policies will pay out if the cause of death is Covid 19 related, if there are no exclusions in policies in respect of pandemics. Claims are usually paid swiftly, providing all policy conditions are met. 

Q. How can I reduce the cost of my cover? 
A. When reviewing life and health cover needs existing policies should always be maintained until a replacement is in place or the need for the cover no longer exists. Those struggling to maintain payments should think carefully before cancelling the policy unless it is no longer needed. Covid 19-Maintaining Life and Health Protection explains how some policies may include premium holidays if the life assured is unable to work due to sickness or unemployment.

Shopping around the whole market will enable access to policy terms which may be more appropriate. While the cost of life cover generally increases with age, insurers review premiums offered, reflecting their claims experience. The difference in the highest and lowest premium offered can be significant.

If there have been improvements in your health or a switch to a safer occupation or you have given up smoking, since first arranging your policies, you may be able to obtain the same cover for a reduced premium. For example, a 45-year-old non-smoker can expect to pay 43% less than a smoker for life and critical illness insurance.* 

Policies are designed to pay out either a lump sum or a regular income, the latter tends to be less expensive as the claim is paid in instalments. Matching the claim payments to the need to clear debts in one go or provide a regular ongoing income can save money and be easier for dependents to manage than a larger lump sum. 

Q. Is it possible to obtain new insurance cover during the Covid 19 lockdown? 
A. Yes, LEBC’s advisers and our bionic protection service, which can be accessed online, are fully operational. We can advise on the appropriate levels of cover, review your existing arrangements and arrange new policies, if needed. If in good health, life and critical illness or long- term disability insurance can still be arranged.

Insurers are working to find ways in which medical tests, where needed, can be performed and for many a certain level of cover will be available without the need for a medical examination in person. Where an individual has symptoms of Covid 19, has been tested positive, advised to self -isolate or is a contact of someone who has, insurers may postpone underwriting of the policy for up to 3 months. 

Q. How much cover should I have? 
A. This may change over time. For example, a mortgage may have been paid off early or increased. Interest rates may be lower now than when the policy started and reviewing these so that the cover reduces more quickly could save money. The needs of dependents may also change on the birth of children or on them leaving home. All these changes can be factored in so that the sum assured remains appropriate to the needs of the family. It should be reviewed when life events occur.

 A review can also assess the availability of benefits from an employer’s scheme and pension funds which may provide lump sums or income on death. These are usually paid outside of the estate of the deceased and do not attract inheritance tax. Other insurance policies can be placed in trust so that they too do not form part of the estate and can be paid to those who the life assured wishes to benefit. To arrange a review please contact your usual LEBC adviser or access our bionic protection service at www.lebc-group.com/bionic-advice/bionic-protection

Kay Ingram
Director of Public Policy

*Based on Iress Comparison Report for Life Protection Level - Term Assurance, Male, 45 yrs old, Term: 20 years, Life Cover Sum assured £100,000. Report prepared 12/05/20 

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. The contents of this blog are for information purposes only and do not constitute individual advice. All information is based on our current understanding of taxation legislation and regulations. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.

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