Buying insurance, especially if we do it for the first time, can raise many questions and ambiguities. We can compare it to the decision to buy a new tablet that we will use every day. If we have never had this type of device before, we have no idea about the different brands, nor do we know anything about battery life or software, then there’s the question of the amount of time we are going to need to learn about the available options and then we have to make an informed decision that we will not regret in the future.
Bearing in mind the importance of life insurance in the UK and sometimes complicated issues related to it, we answer the questions most frequently asked by our clients.
- How does a life insurance policy work?
Life insurance is a type of contract between you and an insurance company. You agree to pay monthly premiums, and the insurer in return undertakes to pay the sum insured to the persons indicated by you, in the event of your death during the term of the policy.
Such a policy is not for you, but for the people whose financial security could be at risk when you pass away (e.g. family or children).
- Do I have to have a life insurance policy?
No, you do not have to. Not everyone has the need to have life insurance, but then not everyone thinks they need it.
If you are single and do not plan to have a family, it may be a more reasonable step to get yourself a private sick pay policy in the event of being unable to work. Being an expat, it is also worth considering whether the family back home will be able to cover any costs associated with the burial and / or bringing the body to Poland.
Your children have already flown out of the nest and are financially independent, and your other half will calmly manage financially after your death? In such a situation, it is worth considering insurance against serious illnesses that are currently so common.
If, on the other hand, you have accumulated large savings, which in your opinion are a sufficient security for your relatives, you should consider the potential costs of inheritance tax, which in the UK could be as much as 40%. Often, the life insurance policy is purchased solely to cover this future payment.
- What should the amount of the insurance be?
The level of sum insured we need depends on individual circumstances. There is no one solution that is good for everyone.
If you have a mortgage in the UK, you should consider an amount that will fully pay off this commitment. If you are a responsible parent, you will want to ensure that your children’s quality of life does not differ much from what it was before your death. The amount of sum insured in this case may depend on the number and age of children, as well as the standard of living we would like to guarantee them.
A good practice in determining the amount of sum inured is to insure ten times the annual remuneration of the main breadwinner. This is not a rigid rule, of course, and we do not have to stick to it. Let’s also remember that, in the long run, the inflation will deplete the real value of the payment, so you should think about adding a policy indexing option.
Often, the choice of the amount of sum insured is decided by the amount that we are able to spend on the monthly premium. Such a solution will not always be able to secure our future needs, but it will cover at least some of them.
- Am I too old for a life insurance policy?
Hmmm … it is said that age is only a number, but with insurance, the rule is that the older we are, the more we will pay for the monthly premium. In fact, we will never be too young or too old for life insurance. There are many types of insurance on the market for people of all ages. Some may even be bought by 70-year-olds. (e.g., over 50’s policies). It is worth noting, however, that the longer we postpone the decision to get our insurance, not only will the price be higher, but the conditions that we will have available may be worse, and sometimes we may not even get the policy, e.g. due to the state of our health and medical history.
- Am I too young for a life insurance policy?
There is a belief that life insurance is bought by people at a “mature age” and it is not something that would interest us when we are young. Of course, this is not a statement true to everyone. The main benefits of taking such insurance at an early age is the fact that the insurer will take into account our current state of health, and the younger and healthier we are, the lower the insurance premium we can provide for the future. We can usually buy our first life insurance policy once we turn 18.
- What is the grace period in a life insurance policy?
We should always read the small print or seek advice from an experienced insurance adviser before getting a policy.
In the British market, with standard life insurance policies offered by the majority of reputable insurers, there is usually no grace period and the insured is protected from the first day the policy takes effect. The only exception is the case of suicides. Most insurers will not pay the sum insured in this respect within 12 months from the start of protection.
- Can I save by having a joint policy with my partner?
Joint policy will usually be cheaper than two separate ones, but the sum insured will be paid only once, in the event of the death of the first insured person. For example, if you and your partner die in a car accident, then with a joint policy, the sum insured will be paid only once, whereas with two individual policies, you can expect a double payment. If we do not have children and our budget is limited, it can be a solution. Unfortunately, things can also get a bit complicated if the relationship we’re in turns out not to be the romantic movie and the decision to break up is made. Then, most often, we will be forced to terminate such a policy and enter another (often more expensive due to age and state of health) to continue to be insured.
- The employer provides me with insurance, should I still have a private cover?
If our employer provides us with a package that includes the so-called “Death in service”, in the case of our death, the sum insured will be paid to our relatives, but only during the continuation of the given employment.
Insurance, on the other hand, expires when we end employment in a given company. If our employer guarantees such packages, then usually the sum insured in the event of death is only 3-5 times the annual salary.
Unfortunately, not all employers offer such solutions, and if they are already available, it is best to check exactly what conditions are in force in such a package and make sure that the amount of sum insured will provide our relatives with adequate protection when we pass away.
It is also worth emphasizing that many people who have company insurance decide on a separate private policy, which is not linked to a place of work, nor does it depend on the salary.
- What if my insurer goes bankrupt?
Fortunately, bankruptcies in the insurance industry in the UK are relatively rare. It does not mean, however, that they do not happen at all. However, we should not worry too much about it, because it will not have a big impact on our protection. If something bad happens to your insurer, the British Financial Services Compensation Scheme (FSCS) will find you another insurance provider who will take over its predecessor’s responsibilities. Always check that your insurer is on the FSCS register to ensure that they are legally registered in the UK.
- What will happen to my life insurance policy if I leave the UK?
The decision to buy a life insurance policy is usually a long-term decision and many things can happen during its duration.
Despite the fact that we are not planning any radical changes or removals at the moment, life has a tendency to surprise us. A large number of insurance companies in the UK give us the opportunity to continue the policy even if we leave the UK (for example, we will move to Poland or live in Spain).
It is worth mentioning to our adviser before making a decision about choosing a policy and an insurer that such a possibility is important to us and may occur in the future.
The standard conditions that we must meet if we want to keep our life insurance cover after leaving England, is to report our new address to the insurer and maintain the British bank account from which the premiums will be collected.
If a situation occurs when we want to move out of the UK and we find that we may have difficulty paying for the policy, due to the reduction in income, it is worth remembering that it is usually possible to reduce the amount of insurance and, consequently, to lower our monthly premiums.
🚨 Data accurate as of the date of publication – 21.06.2019.
🚨 The above material is for informational purposes only and does not constitute a sales offer or financial advice. Before taking out any insurance, credit agreement or other financial product, you should obtain individual advice on your requirements and the general terms of the contract.
