Squashing 8 Myths About Life Insurance

Life insurance provides a priceless peace of mind in that your family and dependants will be cared for financially in the event of your death.

Unfortunately, for many of us, life insurance remains a difficult and awkward topic – after all, we are talking about death which is never easy.

A lot of scepticism on life insurance is derived from a number of myths that have grown up around the subject and how it works.

We’ve gone ahead and exposed the most common ones so that you can make a better choice around the policy that will provide you with the best protection for you and your loved ones.

Myth #1 – You will need to release your medical records or have a medical

It’s very unlikely that you’ll be asked to undergo a medical. Usually, the insurer will only request one if you’ve had a severe health problems before and wants to check how you are now.

Same deal with insurers wanting to gain access to medical records. This only happens in a minority of cases, if the applicant has had a history of severe illness.

Myth #2 – You will need to undertake health check-ups every year to maintain your policy

As soon as you’ve got your policy, there’s no requirement for annual medical check-ups.

Myth #3 – You don’t need any life cover if you’re not working

Wrong. You will need to think about the financial impact your death could pose on your family, even if you are not a breadwinner.

For example, if you look after the children at home whilst your partner works, you will need cover to fund the costs of childcare if you are no longer around.

Myth #4 – Couples should always take out joint life policies

It really depends on the circumstances. Most of the time, a joint life policy will almost always be cheaper than two separate policies, but the cover simply won’t be as extensive or as flexible.

An important thing to keep in mind is that joint policies will only pay out once, so the first claim made would result in the end of the policy. This meaning the second person would no longer be covered and would need to take out a new policy if they chose to continue having life insurance.

Seeing as they would be older at that point, premiums on the newer policy would be higher. Also, not to forget that if the couple splits up, complications might arise.

But if separate policies are unaffordable, a joint policy is a valuable option.

Myth #5 – The insurer will need to credit-check you.

Not at all. A credit check is not required to provide you with cover. If at any point in the future you can no longer afford premiums then you can just stop paying them which would result in the policy cover to cease.

Myth #6 – Your policy can pay out twice if you’ve combined life and critical illness cover.

This type of policy will be paid out once, at that point, the cover will cease.

For example, if you got cancer and claimed on the policy, it would pay out then end. If you subsequently died, there would be no further payment.

Myth #7 – If you possess term insurance, you’ll get a lump sum payment if you survive

If only that were the case. In real life, if you’ll pardon the phrase, you would not get your premiums back if you don’t make a claim during the term of the policy.

Myth #8 – Life insurance pay-outs are always tax-free

They aren’t, but they can be. The key is to ensure that the policy is ‘written in trust’. Your insurer or broker should be able to sort this one out for you – make sure that they do.

Proceeds from a policy written in trust are not taxed. If the policy is NOT written in trust, then the pay-out will be added to the deceased person’s estate, meaning that it could be subject to an inheritance tax, levied at 40%.

By writing the policy in trust is not only tax efficient, but it will also speed up the payment process.