Life insurance

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How Cleery can help you

 
Our specialist protection consultants help find life insurance solutions for professionals without full-time employment contracts so loved ones have the protection they need.
 
Whether you’re looking to get the ball rolling on an application or you’re just after some friendly advice, don’t hesitate to give us a call on 02394 212912 or request a call-back.

Ensure that your dependents are provided for with Life Insurance


What is Life Insurance?

Life Insurance offers a tax-free cash lump sum to your loved ones, ensuring their financial stability if the unexpected happens. This coverage brings peace of mind by securing your family's future, whether it's settling an outstanding mortgage or providing a safety net for their financial needs.

You have the option to enhance your policy further with Critical Illness Insurance. For an added premium, this feature provides a payout if you're diagnosed with a serious illness like cancer, offering further reassurance and support during challenging times.

Do I need Life Insurance?

Securing peace of mind

Planning for the future is essential, especially when considering how your family would manage financially if you were no longer there or if you became seriously ill. It's vital to identify your financial dependents, such as your spouse, children, or parents, and assess the current support they have and what they'll need in the future. Consider the costs your family would face, including household bills, living expenses, mortgage payments, education fees, and even funeral costs.

When deciding on life insurance, think about whether you can afford regular premiums or a one-time payment. Factors like age, occupation, lifestyle, and medical history can influence your premiums. If your family has a history of certain illnesses, adding critical illness cover might be wise.

If others rely on your income to manage debts and daily expenses, life insurance could provide vital financial support. Life insurance is particularly significant for:

  • Newlyweds;
  • Young couples starting out;
  • New parents with a young family;
  • Mature families planning for the future;
  • Retirees who may need financial support after a partner’s passing.

Reasons to consider life insurance include milestones such as: marriage, buying a home, starting a new job, securing a mortgage, or welcoming a child. Each life stage brings unique responsibilities, and having life insurance can ensure your family’s financial security is one less concern during these times of change.

It's important to highlight that Life Insurance isn't necessary for everyone. If you don't have dependents or financial obligations like a mortgage that you'd want managed in your absence, life insurance might not be essential for you. Life insurance is entirely optional, even if you have a mortgage.

What does Life Insurance Cover?

Cover varies from one policy to another, but there are some things that are almost always covered or excluded:

Life insurance covers many common causes of death. However, some providers won’t cover genetic illnesses or conditions like cancer or heart issues. Policies will generally not cover deaths resulting from:

  • Pre-Existing Conditions: Any conditions that are genetic or known before the policy's start date.
  • Substance Abuse: Deaths related to drug or alcohol misuse.
  • Risky Activities: Engaging in dangerous sports or high-risk hobbies.
  • Illegal Activities: Deaths occurring while committing a crime or instigating an assault.

To ensure you choose the right coverage, review the policy's summary, including its limits and exclusions, to make an informed decision before purchasing.

Types of Life Insurance Cover

Life Insurance is a valuable protection policy aimed at providing your loved ones with a financial safety net after your passing. The cash lump sum they receive can be used to cover anything from paying off the mortgage to ensuring their everyday lifestyle is maintained. With various options available, a Cleerly consultant will work with you to tailor the coverage to meet your specific needs, balancing the protection offered with the cost of the policy.

Increasing Life Cover

Increasing term life insurance offers a straightforward benefit: as living costs increase, your coverage grows accordingly. Each year, your policy is adjusted to align with the Retail Price Index (RPI), ensuring that the payout keeps pace with inflation. While this means your premiums will increase, they do so at a rate set by your insurance provider, offering a reliable way to maintain your coverage's real value over time.

Advantages:

  • Inflation Safeguard: Protects your payout’s value against inflation;
  • Cost of Living and Mortgage Adaptability: Adjusts for rising living expenses and larger mortgages during the term;
  • Family Growth: Supports expanding family needs;
  • No Medical Checks for Increases: Coverage increases without further health evaluations;
  • Cost-Effective Compared to Whole Life Insurance: Offers affordable coverage.

Disadvantages:

  • Premium Escalation: Annual increases in premiums;
  • Costliness Compared to Other Term Insurances: Generally pricier than level or decreasing term options;
  • Limited Availability: Fewer providers offer this policy;
  • Initial Setup Requirement: Must be established as increasing term at coverage start;
  • Limited Duration: Unlike whole life insurance, it provides coverage only for a specified term.

Level Term Cover

Level term life insurance offers stability and confidence, with coverage and benefits that remain consistent throughout the term of the policy. This means that both your premium and the cash payout are fixed, providing clear financial predictability and peace of mind for you and your loved ones. Regardless of when within the policy term you pass away, your beneficiaries will receive the same assured payout.

When you choose level term life insurance, you decide the policy's duration, with options available for any term up to the insurer’s maximum age limit, which is usually to age 75.. Throughout this period, your monthly premiums and the payout amount remain unchanged if you set the cover up on guaranteed premiums. If you opt to make adjustments to your policy the premium may change. Upon your passing, your loved ones will receive the agreed-upon cash sum, and the policy will conclude once the payment is made.

Advantages:

  • Guaranteed premiums allow you to secure monthly payments, providing budget certainty.
  • Your death benefit remains constant, ensuring your dependents know the exact amount they'll receive.
  • Flexible term options make it a more affordable choice compared to a whole life policy with the same payout value.

Disadvantages:

  • If no claim is made before the term ends, there is no payout.
  • Renewing life insurance after the term expires can result in higher premiums.
  • The fixed payout does not account for inflation, meaning its real value may diminish over time, such as a £100,000 policy not holding the same value in 20 years.

Decreasing Life Insurance

Sometimes also known as "Mortgage Protection Insurance", Decreasing Life Insurance is an ideal choice for safeguarding a repayment mortgage. Designed to align with the term of your mortgage, this policy gradually reduces its coverage as you pay down your mortgage balance, ultimately reaching zero when your debt is fully repaid. It will cover you for death and terminal illness (critical illness can be added as an optional extra at an additional premium).

This type of insurance is particularly cost-effective because the risk to the insurer diminishes over time, resulting in more affordable monthly premiums compared to a level life insurance policy. By choosing decreasing life insurance, you can efficiently manage costs while ensuring your mortgage is protected throughout its duration.

Advantages:

  • Mortgage Protection: Decreasing life cover is an effective way to secure repayment mortgages or debts, ensuring they don't become a burden for your loved ones.
  • Short-Term Coverage: Ideal for those who don't require long-term cover, this policy helps you avoid over-insuring by providing protection for a specified period.
  • Cost-Effective: Typically less expensive than level cover, decreasing life insurance offers a budget-friendly option for short-term protection needs.

Disadvantages:

  • Premium Inflation: If you do not set up the cover on guaranteed premiums, the monthly cost will increase at regular intervals.
  • Changing Circumstances: Life changes, such as having children or taking out additional mortgages, may necessitate a new policy to ensure adequate coverage.
  • Regular Review Needed: With decreasing policies, there's a higher risk of being under-insured, so it's crucial to consistently evaluate your coverage to meet your needs effectively.

Family Income Benefit (FIB)

Family Income Benefit (FIB) is a specialised form of life insurance designed to provide your family with steady financial support in the event of your death or a terminal illness diagnosis. Unlike traditional life insurance that offers a one-time lump sum, FIB delivers a regular monthly income, making it easier for your family to manage ongoing expenses such as mortgage payments, rent, or household bills.

As the policyholder, you commit to paying a monthly or annual premium and select the duration of your policy. Should you pass away within this period, your family benefits from a tax-free income, effectively replacing your lost earnings for the remaining term.

However, if you outlive the policy term, there will be no payout, and the premiums paid are not refunded. This makes FIB an excellent choice for those looking to ensure their family’s financial stability through consistent income, rather than a single payout, during challenging times.

Advantages:

  • Affordability: This policy offers a cost-effective solution with lower premiums compared to other life insurance options.
  • Family Budgeting Support: It aids in managing long-term family finances by providing a steady income stream.
  • Tax-Free Payments: The benefits received are not subject to tax, maximising the financial support for your family.
  • Trust Option: You have the flexibility to write the policy in-trust, offering additional financial planning advantages.
  • Standard Terminal Illness Cover: Includes terminal illness protection, with the option to add critical illness cover at an extra cost.
  • Joint Policy Availability: Can be taken out as a joint policy, providing comprehensive coverage for partners.

Disadvantages:

  • Term-Dependent Payout: The policy only pays out if you pass away within the term, and there’s a possibility you might outlive it.
  • Limited Payout Duration: The payout is limited to the remaining term, so a later death within the term results in lesser total payments.
  • No Refund on Outliving the Term: If you survive the policy term, there is no refund of the premiums paid.
  • Not Ideal for Large Debts: It’s not suited for lump-sum payments of significant debts, like mortgages, or immediate expenses like funeral costs.

This policy is a good consideration for those seeking affordable, ongoing financial support for their family, while understanding its specific limitations.

Joint Life

Joint life insurance is designed for two individuals, providing a single payout upon the first policyholder's death during the policy term. This payout, typically a lump sum, supports the surviving party. Once the payout is made, the policy concludes, leaving no additional coverage for the survivor.

This type of insurance can often be a more cost-effective solution compared to maintaining two separate policies, making it an attractive option for:

  • Married couples
  • Long-term partners
  • Business partners

Contrary to common belief, joint life insurance isn't limited to spouses or partners in a romantic relationship. It can be tailored to cover any two individuals who have financial ties or mutual support arrangements, offering them a practical way to secure financial protection together.

In a joint life insurance policy, the payout occurs only once, and the specifics depend on the type of policy you select.

First Death Policies: These provide a payout after the first person's death within the couple. Following this payout, the surviving policyholder is no longer covered under the policy.

Second Death Policies: In this setup, the payout is made only after both individuals have passed away, assuming all premiums have been consistently paid.

In the unfortunate event that both policyholders pass away simultaneously, such as in a car accident, the dependents would receive a single lump sum payment from the joint policy. This ensures that financial support is available to those who need it most during such a difficult time.

Advantages

  • A single life insurance policy is designed to cover one individual, whereas a joint policy includes coverage for two people.
  • For couples, opting for two separate single life policies can be a wise choice. This approach provides added peace of mind, ensuring that if one partner passes away, the surviving partner retains their own coverage, offering continued financial security.

Relevant Life Cover

Relevant Life Insurance functions much like personal life insurance, providing a lump sum payment if you pass away or receive a terminal illness diagnosis with a prognosis of 12 months or less.

The key distinction between this policy and general Life Insurance lies in the payment structure: personal life insurance premiums are paid from your personal funds, while Relevant Life Insurance is financed by your company and recognised by HMRC as a legitimate business expense. This classification means the premiums are usually exempt from National Insurance and Income Tax.

Key aspects of this protection include:

  • The benefit amount is given to your loved ones, offering financial support during a challenging period;
  • Some providers allow coverage of up to 25 times your salary;
  • These policies are taken out and paid for by the employer (for example a Limited Company), for the benefit of the employee and their family;
  • Upon death, the payout is placed in a special trust established at the start of the policy, which helps avoid inheritance tax implications on the benefit.
  • A Relevant Life Policy is paid for by your limited company, so you can enjoy tax relief on premiums, no benefit in kind (BIK) implications, and payouts free from inheritance tax.

This is where Cleerly can help. Please feel free to call us on 02394 212912 or request a call back and let us find the right life cover solution for you.

Pays a lump sum to provide financial relief during treatment and recovery


Consider Critical Illness Cover

While traditional life insurance provides a payout upon death, Critical Illness Cover ensures financial support if you're diagnosed with a serious health condition as specified by your insurer. Common claims include illnesses such as cancer, heart attacks, and strokes.

The likelihood of facing a severe illness is often higher than that of passing away, which is why adding this cover may increase your monthly premium. However, the financial protection it provides can be invaluable. If you're affected by a critical illness, you might need to adjust your work hours, potentially stop working, or even make home modifications—all of which can strain your finances. This is where Critical Illness Cover steps in, offering crucial support.

Many choose to add this cover for the reassurance it brings, knowing they're prepared for unexpected health challenges.

Financial relief if you're prevented from working for an extended period


What About Income Protection for Additional Cover?

Income protection insurance is designed to provide essential financial relief if illness or injury prevents you from working for an extended period.

An income protection policy ensures a steady flow of income, helping you meet important expenses like mortgage payments and household bills for a specified period. You can select from a range of coverage options, both short-term and long-term, to suit your individual requirements. During unforeseen circumstances, this insurance can lessen the financial strain on your family, granting peace of mind and stability.

Cleerly specialists evaluate a spectrum of income protection options available to residents in the UK, including standard income protection insurance, self-employed income protection, and budget income protection.

Putting Life Insurance in a Trust

Placing a life insurance policy in trust can be an astute move to safeguard your payout from Inheritance Tax (IHT), ensuring your loved ones receive a larger portion of the funds. This approach not only enhances the tax efficiency of your payout but also speeds up the process, allowing your family to access the financial support they need more quickly.

What is Life Insurance in a Trust?

Transferring your life insurance policy into a trust can be a strategic way to ensure your loved ones receive the full benefits without the burden of inheritance tax. By doing so, the policy's proceeds are not considered part of your estate, thus avoiding potential tax implications. Your estate consists of everything you own, such as property, money, investments, and possessions, minus any debts. Typically, if your estate exceeds the £325,000 tax-free threshold, it could be subjected to a 40% inheritance tax on the amount above this threshold.

With a trust, your designated trustees will manage the policy and distribute the funds to your chosen beneficiaries, such as children, relatives, friends, or even a charity. This setup not only ensures that your loved ones receive their funds more quickly, bypassing the lengthy probate process, but also alleviates any concerns about inheritance tax on the payout.

Advantages

  • Faster Payouts: Funds can be released without the delays of probate, allowing beneficiaries to access the money promptly.
  • Tax Protection: The payout is shielded from inheritance tax, ensuring your loved ones receive the full amount.
  • Distribution Flexibility: You have the option to dictate when beneficiaries receive their funds, such as requiring them to reach a certain age.
  • Debt Protection: The payout is safeguarded from being used to settle any outstanding debts.
  • Cost-Effective Setup: Many insurance providers offer support and templates to help you establish a trust with ease, often at no additional cost.

Disadvantages

  • Difficulty in Making Changes: Once a life insurance policy is placed in trust, reversing or altering it can be challenging, and in many cases, it cannot be taken out of trust.
  • Risks of Amendments: While it's possible to amend a trust, doing so can be risky. There have been instances where changes invalidated the life insurance policy, so it's crucial to consult a legal expert if you have any doubts.
  • Potential Tax Implications: Moving a life insurance policy into a trust could lead to inheritance tax charges if the beneficiary is changed and the policyholder passes away within seven years. This tax is generally applicable if the new beneficiary is not a spouse or civil partner, but the tax liability decreases if you live longer than three years after making the change.
  • Legal Consultation Advised: Due to these complexities and potential risks, seeking advice from a legal expert is highly recommended when considering placing life insurance in trust.

How Much Does Life Insurance Cost?

Understanding the cost of life insurance involves considering several key factors:

  • Coverage Amount: The more you choose to insure, the higher your premiums are likely to be;
  • Coverage Duration: The length of time you want the insurance to last impacts the cost;
  • Policy Type: Different policies like Level Term, Decreasing Term, Family Income Benefit, or Whole of Life Assurance have varying costs;
  • Health Status: Your current health and any pre-existing conditions play a significant role in determining your insurance rate;
  • Smoking Status: Smokers often face higher premiums compared to non-smokers.

Your Cleerly Consultant will discuss and interpret your unique Life Insurance requirements and present the policy costs to you.

How to Apply for Life Insurance

When applying for life insurance, you'll need to provide some essential information to ensure you find the right coverage. Here's what you'll need:

  • Personal Details: Share basic information such as your name, address, date of birth, and occupation.
  • Health Information: Be ready to disclose any pre-existing medical conditions along with basic health details like your height and weight. Even with pre-existing conditions, life insurance is often available, and if your condition is serious, some providers offer guaranteed coverage for those over 50.
  • Lifestyle Factors: Inform about your lifestyle habits, including whether you smoke or drink, as well as any activities you engage in that might be considered risky.
  • Coverage Requirements: Specify the type of life insurance you're looking for, the duration of the policy, and your budget preferences.

This information helps tailor the insurance policy to your needs, ensuring you receive the most suitable protection.

Life Insurance FAQs

Life insurance payouts are generally free from income tax, and you won’t incur insurance premium tax (IPT) on your premiums. However, if your estate's total value exceeds the £325,000 threshold, the payout could be subject to inheritance tax. To potentially avoid this, consider placing your life insurance policy in trust. This strategy can help ensure that your beneficiaries receive the full benefits without the burden of additional taxes.

While life insurance is not a legal requirement when securing a mortgage, it is an important factor to consider. Think about the potential impact on your family and home if you were to pass away before the mortgage is paid off. Would your loved ones be able to manage the debt and remain in the family home, or would they be forced to sell and downsize due to financial constraints? Having a suitable life insurance policy can provide peace of mind, ensuring that your family is financially protected and can maintain their lifestyle in the event of your untimely passing.

When planning your life insurance coverage, think about how long your dependants will require financial support. Would you like to cover your children's university expenses or ensure your partner has additional funds for a comfortable retirement? These considerations can help you determine the appropriate duration and amount of coverage needed to secure your family's future.

  • Regularly review your life insurance policy, ideally once a year, to ensure it aligns with your current circumstances.
  • Life changes can alter your coverage needs, making it important to keep your policy up to date.
  • Instead of cancelling an existing policy, consider modifying your coverage or adding another if necessary.
  • Key life events that may warrant policy adjustments include:
  • Changes in health or lifestyle
  • Divorce or separation
  • Starting a new job or facing redundancy
  • Increased debt or a larger mortgage
  • Changes to your beneficiaries
  • These adjustments help maintain the relevance and effectiveness of your coverage.

Employer-provided life insurance policies often remain active only while you are employed with that organisation. Once you leave the company, the policy typically becomes inactive. Many employers offer a death-in-service benefit, which is designed to provide a financial safety net. This benefit generally pays a lump sum, often four times your salary, to a designated dependent. However, it's important to view this benefit as a supplement to personal life insurance rather than a full replacement, as its coverage is tied directly to your employment status.

Life insurance and income protection both provide essential financial support for your loved ones, yet they serve different purposes. Life insurance offers a lump sum payout to your beneficiaries if you pass away during the policy term, ending the policy upon a successful claim. In contrast, income protection delivers a monthly benefit, representing a portion of your income, if a medical issue prevents you from working. This type of policy allows for multiple claims until you're healthy enough to resume work. Your coverage remains active even after claims have ceased, offering the flexibility to claim again if necessary, continuing until you either decide to terminate the policy or reach retirement.

Changing your smoker status can sometimes impact your life insurance policy. If you were a smoker when you initially purchased your policy but have since quit, you might qualify for a new policy as a non-smoker, potentially lowering your premiums, provided you meet certain requirements.

Conversely, if you've started smoking after your policy was issued, your premiums typically remain the same. However, informing your insurance provider is crucial, as failing to do so might invalidate your policy. It's essential to review your policy's terms and conditions to understand your obligations.

Certain insurance providers may offer an early payout option to ease the financial burden for you and your dependents if you're diagnosed with a terminal illness, typically when a doctor estimates you have less than 12 months to live. It's important to review the policy details before purchasing, as the specific terms can differ between providers.

Feeling inspired?

Would you like to find the right life insurance cover to ensure the welfare of your loved ones?

Whether you’re looking to get the ball rolling on an application or you’re just after some friendly advice, don’t hesitate to give us a call on 02394 212912 or complete the form below.

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