Your life insurance questions answered
Aviva distribution director, Louise Colley, answered your questions regarding life insurance in November 2013.
Louise has worked for Aviva for 25 years. She is extremely passionate about families protecting themselves financially and is a dynamic spokesperson in the national press on the subject. Aviva's free new parent life cover initiative, is Louise's brain-child. She was also instrumental in developing an emotionally engaging approach for Aviva's life insurance TV advertising campaign.
Louise's contribution to raising awareness levels of protection and challenging customer behaviours has been recognised through a number of key industry accolades.
Message from Louise
Thank you for all your questions regarding life insurance and for sharing your personal experiences. It's such a difficult subject to talk about and it's great to see that so many of you have already taken steps to protect your family or are seriously considering doing so. If just one person ticks life insurance off their to-do list as a result of your comments, you'd have helped make a difference.
Quite a few of you asked similar questions, so to avoid repeating myself, I've grouped my answers together under common themes. I hope that this gives you the information you need. Don't forget that I can only offer general guidance and I am not able to provide you with a personal recommendation. If you need more in-depth advice about the right product for your personal circumstances, you may find it useful to speak to a financial adviser.
Thank you again,
When should I consider life insurance?
Q. NotAFeminist: Neither me or my husband have it. We are young – he's 26 and I'm 21 – and we have a one-year-old. Although I would like to have a life insurance policy, I really don't know how to go about it. I find it all kinds of confusing and don't know where to get unbiased, honest advice. I'm confused by things such as: if you die before a certain time, not all of what's been saved is paid out or something? Especially now we have a child, I see the importance of being prepared in case anything happens but I wouldn't know where to start. Any help would be greatly appreciated.
Q. Roundles: When should I start panicking! I'm 31, I have no children and no life insurance but a partner of a similar age who I would hate to leave with nothing. We are both on low-ish incomes, job security at the moment is an issue for both of us. Where do we start?
A. Louise: There's no right or wrong time to take out life insurance, (we even have a policy for the over 50's) but as a guide, people often take it out when they have a major life event, such as buying a house, moving in with a partner or having a child.
As a general rule, premiums tend to be lower, the younger you are. Now is as good a time as any to start to think about your protection needs. Hopefully you'll find a few good pointers on this page. I'd also recommend that you talk to a financial adviser about your needs. If you don't already have one, you may find this link useful.
What's the difference between the products?
Q. Mumsbe: Life insurance is on my to-do list but I can't really afford it or understand it. What kind of insurance do I need if I want a lump sum pay out to my children?
Q. 10thingsihateaboutpoo: We both have 3x salary cover at work and took out joint life policies after each DC was born, so we're well covered in that respect. I do think we ought to have some sort of critical illness policy but there seem to be so many options and I'm not sure of the ins and outs. It's a bit daunting. I worry we'd end up paying a lot for the wrong thing.
A. Louise: It's great to see that you've already taken steps to protect your family. As you say, you don't want to be paying for benefits that you don't need, so you may find it useful to have a chat to a financial adviser about this. If you don't already have one, you may find this link useful.
Here's a very brief description of some of the different types of family protection products available:
- Life insurance: (also known as life cover or life assurance) Is designed to leave your loved ones a cash sum, to help make it easier to maintain their lifestyle in the event of your death. The benefit paid through employer sponsored life insurance schemes is often referred to as death in service benefit.
- Critical illness cover: Is designed to pay a cash sum if you're diagnosed with one of the critical illnesses covered by your policy. This is often available as an optional extra on life insurance policies, so it's worth checking whether it's covered on your policy.
- Income protection: Designed to pay you an amount each month, if you're unable to work long-term due to illness or accidental injury. A monthly benefit, based on a proportion of your salary, is usually paid until you return to work or you reach the policy end date.
It goes without saying, that it's really important that you fully understand what your policy covers. The good news is that many insurers (including Aviva) are now writing their terms and conditions in plain English, to help make it easier for you to understand your cover. However, insurance can still be complicated if you're unfamiliar with the products, so don't be afraid to continue to ask questions.
How do I know how much cover I need?
Q. Crewella: I have life insurance through my work, I believe that it's two times my salary but that's it. I took advantage of the free £10,000 from Aviva for my baby's first year through the Mumsnet page but I'm not sure how much is enough. Is there a standard calculation based on salary, number of children you have, etc?
A. Louise: It's great to see that you've got some protection through your employer and that you've also taken advantage of our £10,000 New Parent Free Life Cover.
The amount of life insurance cover you need will vary depending on your personal circumstances. A financial adviser will be able to help you work through your exact needs. To help you get started, it may be useful to consider the following:
- How much does your current lifestyle cost and what are the most important things for you to protect?
First work out how much you spend each month on bills (including debt, credit cards and loans), your mortgage/rent, family activities etc. Don't forget to include things such as hobbies and all the other things that form part of your family's routine. You'll also need to consider the cost of child care, if the main carer is no longer around.
You can use our lifestyle maintenance calculator to help you with this.
Next, prioritise your out-goings by asking yourself what would have the biggest impact on your loved ones if you were no longer able to afford it. For example, this could be your mortgage.
You'll now have a clearer view on what's essential to protect versus what's nice to have. This in-turn will help you work out how much financial support you'd need to be able to maintain this.
- What protection do you already have in place?
Think about any other benefits that you might be entitled to. For example, any death in service cover you have through your current employers. You may also be entitled to state benefit from the government if you're bereaved but this will depend on your circumstances.
What other assets do you have and how far would these go? eg savings
- Think about the finer details:
- Who do you want the policy to cover?
- How long do you want the cover to last? For example, do you want it until you've paid off your mortgage, when the children leave home or perhaps when you retire. This will help your financial adviser select the right product and level of cover for your personal circumstances.
I'm covered through work – do I need additional cover?
A. Louise: These days, many employers offer their employees life insurance cover as part of their employee benefits package. This is commonly referred to as death in service benefit. Typically death in service benefit provides a lump sum of around four times your salary to your nominated beneficiary, if you die. This will vary depending on your employer. Some employers may include dependents pension benefit as part of their group life policy.
Death in service benefit can offer a great safety net if you die while working for your employer. However, depending on your personal circumstances, you may benefit from additional cover.
Here are a couple of pointers that may be useful:
- Many employers now offer life insurance as part of a flexible benefits scheme. This type of scheme usually allows you to increase the amount of life cover, income protection and critical illness cover your employer offers as standard. It's worth checking whether your employer has this type of arrangement in place and if so, when the window opens for you to review your cover. (This is usually annually.)
- Death in service benefit is non-transferrable so if you leave the company you'll lose the benefit.
- As the level of benefit is based on your salary, if you reduce your hours, then benefit will be calculated on your pro-rata salary.
- While life insurance is an extremely common employee benefit, fewer employers offer income protection or critical illness cover. Don't assume you'll have these too.
I'm covered by my employer now but what happens if I leave?
Q. Nextphase: I have life insurance through work. What happens if I change jobs? Will we get stung because we are much older when taking out a new policy?
A. Louise: It's great to see that your employer is offering you cover. Typically, company funded life insurance and accidental death cover policies are not portable. If you leave the company, it's likely that you'll lose the benefit.
You're right that a person's age is one of the factors taken into account when insurers set life insurance premiums. Typically, premiums will be more expensive the later in life that you take out the policy. However, there are lots of different options available and if you find yourself in this situation, I suggest that you talk to a financial adviser who can help you to find the best option for you.
Can I shop around for the best deal?
Q. WowOoo: We have life insurance. We got it when we bought a house together many years ago. The next step was to have children, so it seemed sensible. I think that a lot of the small print is very confusing and deliberately so. I wish insurance companies would write in plain English.
Do you know if it's possible to change your life insurance provider? I shop around for all other types of insurance. Can I do the same for life insurance? I suppose I will have wasted years of no claims?
A. Louise: It's good to hear that you already have some life insurance provision in place. Yes, it is possible to switch life insurance provider but make sure you understand whether there's any implications if you do this. Here are a few pointers to help you:
- Check whether you'll be subject to any premium increases if you switch your policy, due to deterioration of health since you took out your policy or your age.
- It's important to compare life insurance products like for like. What might seem like a better deal, might not provide you with sufficient cover for your personal circumstances.
- Ask your life insurance provider if you can amend your cover for more or less protection, depending on your circumstances. Not all policies will allow this and it may be cheaper to maintain your current policy and apply for additional cover with another provider, as some policies have guaranteed rates and premiums that generally increase with a person's age.
That's not to say that there may not be a better deal out there for you. Just make sure that you seek the right advice before you make the change. A financial adviser should be able to help you. Finally, life insurance doesn't have a no claim bonus like car and home insurance so don't worry, you haven't wasted years' no claims.
Do I need to be married?
Q. Whattodoo: My DP has cover through his employer. I have cover through two endowment policies but they're probably not sufficient. We really should get proper advice about what is best for us in terms of product and amount. Does it matter that we aren't married? Our wedding is next year, so would it make sense to wait until after then? We have a DD.
A. Louise: It's great that you're thinking about your protection needs. You don't need to be married to take out life insurance – you simply need to ensure that your plan is set up in such a way that your DP will receive the benefits. Your financial adviser will be able to help you with this. Good luck with your wedding plans.
My partner doesn't get death in service benefit - do we need to take out additional cover for him?
Q. MissRee: I'm covered for 4x my salary through my work and through a life insurance policy my partner and I took out when buying our house. My partner doesn't get a death in service benefit from his employer. Should we be looking for more coverage, should anything happen to him? We did have critical illness cover but I think the policy lapsed. )I must dig out the paperwork for that and renew it.)
A. Louise: Based on what you say, it looks as though both you and your partner already have some protection through a personal life insurance policy. However, as you took it out when buying a house, you may want to check how much cover it offers you. People often align the benefit with their mortgage and if your circumstances have changed, it's worth reviewing your cover to ensure that it still suits your needs. I suggest that you have a chat to a financial adviser about this. They should also be able to help you decide what to do with your elusive critical illness policy.
What happens if me or my DH have been unwell in the past?
Q1. Carriemac: My husband had cancer 20 years ago so I don't know if we would get coverage. We have death in service benefits from NHS.
Q2: mamof3boys: We haven't got life insurance, although I know that we should. We did try to apply for it a few years ago but I'm not sure what happened to the application. My husband had cancer around 15 years ago so I'm not sure if that affected it. It really is something that I need to look into as we have three children but to be honest, I'm not really sure where to start. There just seems to be so many different options and it confuses me.
Q3. Cucumberscarecrow: I tried to take out life insurance before but was completely daunted by the level of medical background required. I am fit and healthy and in my late 30's. I don't know what my great-grandmother died of and whether my diagnosis with borderline asthma 18 years ago following some time in smoggy Mexico City was relevant. I was unsure whether there were other minor things I was forgetting where their omission would void the policy. I gave up. In other words, I really want insurance but am terrified by the burden of the application process. Can Aviva help simplify this or give tips on how best to deal with it?
A. Louise: You'll be pleased to know that many insurers (including Aviva) have taken steps to make the application process simpler. For example, we've written our health and lifestyle questions in plain English so they're easy to understand. By asking clear questions, we can accept the majority of people immediately for life insurance and at the premium quoted. Occasionally, we may need to request further information, either from you or your doctor, as part of the application process. Then depending on medical history, we may need to increase the premium.
To answer your specific concerns, Carriemac and mamof3boys, a history of cancer 15 or 20 years ago with no recurrence would usually be acceptable and wouldn't prevent life insurance being taken out. Finally, Cucumberscarecrow I am sorry that you are terrified by the burden of the application process. You obviously recognise the value of protecting your family and there really is no need to be daunted. We don't need to know what your great-grandmother died of and your borderline mild asthma is unlikely to be of any concern.
My cover's coming to an end. What should I do next?
Q1. WhisperingPea: We've both got life insurance taken out 16 years ago when our daughter was born: one is straight life insurance and the other would pay a set amount each month. They both end in less than two years and we're wondering what to do at that point. The house is paid for and we've savings that would support her for a good few years. Does Aviva have any advice?
A. Louise: Thank you for your question. Unfortunately I'm only able to offer general guidance so the best piece of advice I can give you is to speak to a financial adviser. They'll be able to review your circumstances and suggest the best course of action.
How can I make sure my children benefit?
Q2. AndHarry: Is there any way to make sure that if I died and DH remarried and then died before his new spouse, our children would receive some of my pay-out? I wouldn't want to leave it in trust to them as I can imagine a lot would be needed to pay for childcare and other expenses but I wouldn't want them left unprovided for either.
The thing that puts me off getting additional critical illness/injury cover is that it seems that insurance companies try very hard to not pay out. Can you talk a bit about that please?
A. Louise: There are ways of ensuring that your children would be protected in this circumstance. I suggest that you seek financial and/or legal advice to ensure that the relevant instructions are in place.
It saddens me that people still think insurance companies try to avoid paying critical illness claims, when in reality we pay the vast majority of claims and we much prefer telling people that their claim has been paid. We publish our claims figures every year and last year we paid out 99.3% of life insurance claims and 92.5% of critical illness claims. My top two tips are:
- Make sure you fully complete the application form
- If in any doubt speak to your provider or financial adviser
Should I be paying my ex-husbands life insurance?
Q3. Yogagirl17: Should I still be paying my ex-husband's life insurance? It's designed to cover the mortgage for the house I'm still living in.
A. Louise: Unfortunately, I'm unable to give you an answer as there are quite a few unknowns such as who is responsible for the mortgage payments. It's certainly worth you speaking to a financial adviser about this though.
I'm confused by the trust element of my policy.
Q. AntoinetteCosway: We have life insurance through Aviva. What I am terribly confused by is the trust element. We'd like to write it into trust but there's no indication of whether a trustee can be a beneficiary. When I've phoned Aviva to ask they just say they can't help.
I would also like to know how to deal with future children. For instance, can I make DH both trustee and beneficiary so he can dole it out as appropriate to DD and hypothetical future children? Why can't I put future children on it? Why do beneficiaries have to be named specifically? I know we need to go and see a solicitor about this but we don't have a spare £500 and it's driving me nuts that something so easy is made so difficult by such a stupid form.
A. Louise: I'm sorry that we weren't able to answer your questions initially but I'd like to look into this again for you.
It's great to see you're considering using a trust to distribute the proceeds of your plan to ensure the money gets distributed as you'd want. However, this can be complicated so you should make sure you speak to a financial adviser so you fully understand the terms of the policy.
Last updated: about 3 years ago