Q&A with Bonnie Burns about life insurance
Bonnie Burns from Legal & General joined us in June 2011 to answer your questions on everything to do with life insurance. From trusts and policies to whether there's a magic formula for working out how much you life insurance you should take out, Bonnie offered her expertise.
Bonnie is a product development director at Legal & General, and specialises in all aspects of protection insurance, as well as wider concerns about financial planning for the future.
Q. JafinA: We have recently set up new life insurance policies for me and my husband. We have been advised to put them in trust, could you please explain what the trusts are for and who they suit?
A. Bonnie: One of the main advantages of placing a life insurance policy in trust is that you can ensure that if you die the money paid out by the policy goes to whomever you want the money to go to, without any unnecessary delays.
- www.unbiased.co.uk – Independent Financial Advisors (IFAs) in your area who can specifically answer direct problems.
- To speak to someone at Legal & General for financial advice, ring 0800 316 8540 and quote MUMSNET1. (Lines are open Monday to Friday 8.30am to 5.00pm. Call charges will vary and calls may be recorded and monitored)
If the worst was to happen, your personal representatives will normally need to obtain a "grant of probate" or "grant of letters of administration" to be given the authority to deal with your estate.
This can take time and if you die without making a valid will, or your will is challenged, it can take even longer. If you place a life policy in a trust, the policy is effectively controlled by the 'trustees' - or the people you choose. A trust is independent of your estate, so the money can be paid out quicker as the trustees don't have to go through this process.
There are several different types of trusts available. Most life insurance companies will offer, without charge, off-the-shelf trusts designed to be used with their policies. For more information you can speak to your financial adviser or your life insurance company.
Q. HarrietJones: My husband and I both have life insurance, but have now been advised that I need to put mine in trust. How do I do this for three children? Two of them I had with my ex-husband, and the youngest with my current husband. I have two policies, but we also have a mortgage to consider?
Why does my husband have a premium put on his? He has a condition which isn't life-threatening but, as he has to have a check-up every 18 months, our policy classes it as being 'under treatment'. Why is being under treatment for this seen as higher risk than someone who never seeks medical advice?
A. Bonnie: To answer your first question, the people who can benefit from a trust are called 'beneficiaries' (eg your children) and when setting up the trust they can be identified. Policies can be used for mortgage protection and others placed in a trust for all the children in the future.
Without knowing more about your husband's specific case, it is impossible for me to answer your second question without knowing what the condition is. I think you should quiz your life insurance provider for more details.
Q. bumpybecky: I know this is a how-long-is-a-piece-of-string question, but how much life insurance do we need? Is there a magic formula that takes into account the number of children, ages of children, current household income, mortgage amount etc, that can let me work out how much cover we need? We've both got separate life insurance policies and they more than cover the mortgage, but how can I make sure there's enough to pay for everything else should something happen to my husband or me?
A. Bonnie: Unfortunately, there is no magic formula as everyone's needs are individual. However, as a guide, it is essential to cover your mortgage and any other large debts if there are no other means of paying these off.
For family protection your salary (or combined with a partner's salary) is used to support your current lifestyle. If you were to die and leave dependants, suffer a critical illness or be off work due to illness or accident, then you would need to replace that income.
If you have a family, it's ideal to have family protection until your youngest child finishes education. Your retirement age is a good indication if you're looking for personal cover. There are policies which pay out a monthly income and others which pay out based on a lump-sum. Your financial adviser can help you to understand which products are most suitable to your needs.
Q. loopy9: When I take out a policy how quickly does it start: am I instantly covered? And if I cover my mortgage, what else do I need? My mortgage is my biggest bill, so should I just cover this or should I be adding on funeral expenses, living expenses, university fees and so on? And is there any small print I should look out for?
A. Bonnie: With most large providers having online applications, you may be able to get covered straightway. Depending on your personal circumstances, including age, current health and lifestyle, then a decision can usually be made instantly.
It may take longer if the insurer needs to find out more about a specific medical condition. However, most insurers give you free cover should you suffer an accident whilst they are processing your application.
If you are taking cover out for mortgage protection, your life policy will normally start on the completion day. Once your mortgage is covered, you also need to consider your other outgoings to maintain your family's current lifestyle. Bills and living expenses generally account for 2/3 of your income, so you should ensure you have enough to cover your bills - even if the mortgage is paid off. It would be a shame to save the house but not be able to afford to live in it.
It may also be beneficial to consider funeral expenses and things such as education or university fees. It's in your interest to always read the company's key features or policy summary document and the policy T&Cs. Also, it's important you answer the application questions as truthfully as possible to ensure that any claim is not turned down because the answers given to the questions were incorrect.
Q. HauntedLittleLunatic: I am a newly single mother with three children, and I have an endowment policy with a sum assured (a little) greater than outstanding mortgage, so that's covered. What else do I need to think about? Presumably if I should die, my ex-partner would take custody of the children. Should I provide him with money to raise them? I don't want to line his pockets but wouldn't want my children to suffer. I am currently thinking that as I have reasonably substantial savings due to a recent windfall, my estate would probably be worth more than I would insure myself for anyway.
However, I think my savings will go into a new home in a couple of years, and then I am likely to need life insurance to cover the increased mortgage. Am I better off finding life insurance now, as I assume it will only get more expensive as I get older? Or will any policy I take our now get more expensive as I age anyway?
A. Bonnie: Life cover premiums are usually guaranteed to stay the same once you've taken a policy out and don't change the cover in any way. Age is an important (but not the only) factor taken into consideration when setting premiums.
Generally, the older you are, the higher the premium will be when you take out a policy. As you don't know what will happen to your health in the future, taking out life cover now is usually the best advice. However, to work out what is best for you and your personal circumstances, you need to seek out specific advice.
Q. Mouseymouse: I have life insurance from my time living abroad (which was part of the payment package but I kept it on). I have written confirmation that it is valid as long as my main residence is in the EU. Would it be possible to use this policy for a mortgage in case we want to buy property in the future?
A. Bonnie: Unless the policy is assigned (for example, to a mortgage lender), then you should be able to use the proceeds for whatever purpose is suitable at the time of claim. Your beneficiaries will be able to use the money once it is paid. You may want to check if the policy has been placed in a trust. If not, it may be worth looking at doing this and that way the money can be released sooner.
As I mention above, there are several different types of trusts available, so you should seek advice on what is on offer to you. When you make a decision, you should always read the company's key features or policy summary document and the policy T&Cs. Also, you need to answer the application questions as truthfully as possible to ensure that any claim is not turned down because the answers given to the questions were incorrect.
Q. Earwiggo: My husband has just left a job where his work pension had a scheme attached, which would have provided three times his salary as a lump sum on his death, and a pension of a third of his salary to me for the rest of my life. I realise this was a good deal, especially as it was free with his job, but is it possible to replicate this sort of policy now he is working freelance?
A. Bonnie: The existing pension should still be available for you, but you should be able to take out an additional private pension as I would presume no additional monies are being paid in. You can take out an additional private pension and can apply for life assurance. The amount of cover can be tailored to your current needs and doesn't need to be a fixed 3 x salary.
Q. WeirdAcronymNotKnown: When my daughter was a baby, our bank guilt-tripped us into signing up for life insurance. Nothing was asked about our current health, but on looking through the policy, it seems that we should have been and that if anything happened to my husband, we may not be covered because they didn't know about a pre-existing condition (nothing serious, but still a chronic problem). So we could be wasting our money.
I really feel we were taken advantage of and that the salesman acted unethically. I gather even if we stopped it we would get no money back, but if we started a new policy it would be more expensive as we are older. So I've no idea what to do for the best and would appreciate some advice.
A. Bonnie: You should contact your provider in the first instance to express your concerns. Then, after that, you should try to find some more independent advice. Depending on the actual condition, you may or may not be able to get standard life assurance cover.
Until you secure, and are accepted, for a new policy, you should think carefully before cancelling this policy, because if you cannot get alternative cover you could be left without any life assurance.
Life assurance premiums have been reducing over the last decade as life expectancy has improved and premiums have become cheaper, so it would be worth checking. Life assurance premiums are a lot cheaper than most people think.
Q. Jcee: My partner had cancer as a teenager, with no need for treatment since he was 15. He's now 36 and when we bought our house together eight years ago we were both encouraged to apply for life insurance by our financial adviser.
We were both turned down - him because of the cancer and me because I lived with him and his health was taken into account on my application as it was a joint one (we are not married). But the insurance company could offer no other reason why I was declined other than the computer assessment said so, despite me having perfect health.
We now have a daughter and I'd like to make sure we are covered should the worst happen. Would my partner get cover for life insurance now? Would we be affected by the previous refusal to insure us?
A. Bonnie: Normally, life assurance companies assess people on their individual circumstances. I can only assume that the policy you applied for was a joint policy and it was the policy that was declined due to medical disclosures.
If you are in good health you should be accepted for a single life policy regardless of the medical health of your partner. Life insurers do ask if you have been declined for insurance previously but this shouldn't prevent you from being accepted if you were declined solely because of your partner's health.
If you like, you can call us on 0800 316 8540 and quote MUMSNET1 for information about Legal & General's products. (Lines are open Monday to Friday 8.30am to 5.00pm. Call charges will vary. We may record and monitor calls.)
Q. SoloIsAHotCougar: I have an inadequate life and critical illness policy because I remortgaged some years ago and I couldn't afford the insurance payments for anything on top; I'm about £20k short and it does concern me.
The reason at the time for me being unable to raise my cover was (and still is as far as I know) that I have, in the past suffered from severe depression (biggest incidence was clinical in 1988 and then pre-natal in 1998) and that I have had ME/CFS since 1999, which some companies class as mental illness (think it was L&G too), meaning that I have no option but to remain vulnerable.
Why is it when so many people suffer depression, and an awful lot of people have ME, do the insurance companies either refuse to cover us or load the cost of the policy so much that we cannot accept the cover?
A. Bonnie: As insurers we look at every case individually. A number of factors need to be considered before any kind of recommendation can be provided. It is best to speak to an IFA about the options available.
Q. Microserf: Why do insurance companies get so concerned about anxiety, stress and depression for life and critical illness cover? You don't cover any of these things as far as i can see, so why the big deal?
A. Bonnie: Insurers look at a number of factors to determine the cover provided and as part of this, we consider anxiety, stress and depression, among other indicators. When all these factors are taken into consideration, an appropriate level of cover can be suggested which best suits the policy holder and the provider.