It’s not a secret that if you smoke you’re more likely to die earlier, and therefore your insurer is more likely to have to pay out. In order to hedge their bets a little, insurers charge less for a policies to non-smokers than smokers.
To count as a non-smoker you must be genuinely nicotine free for over a year (many companies now want you to be nicotine-free for five years). This must be genuine, if you die and it is found that had been a smoker it could invalidate your policy and your dependents would get nothing.
If you are planning to give up smoking, try consulting your GP and having it mentioned on your medical records.
Although this is something that actually might happen – life insurance is generally taken out over a long period of time, and anything can happen – it’s actually not as bad as you may think. In the even of your insurance provider going bust these are the most likely outcomes:
- If your broker went bust, then the only payment you’re likely to have made them is a small fee for arranging the policy. And whilst not the best situation, you can simply use another broker and you’re only out of pocket a small amount.
- If your insurer goes bust then the Financial Services Compensation Scheme (FSCS) will try and find another insurer to take over your policy. If you need to claim before a new insurer is found, the FSCS should still ensure you’re covered.
Again, this is entirely up to you, and a talk to one of our advisers should help you make this decision. However, we believe that a s a basic rule it should be long enough to cover your partner at least until they reach pensionable age, and any children until they finish full-time education (at least).
You may want to cover for longer than these suggested times, as it could be expensive to change the policy later on (they tend to get more expensive the older you get) and situations do change.
Only get as long a term as you feel necessary; don’t feel forced to get a policy for 30 years if you feel that 27 will be sufficient.
Although your dependents won’t have to pay income tax on your payout, it does count as part of your estate and if your total total assets (including this payout) are above the inheritance tax (IHT) threshold , they will have to pay 40% IHT on it. This can be avoided if you put your policy into a ‘trust’ – talk to your adviser for more information.
As a general rule we suggest taking out cover for ten times the annual income of the highest earner.
Obviously, this may not be suitable for everyone and everyone’s situation is completely personal to themselves, and there are many things you have to take into consideration:
- Do you have outstanding debts?
- How old are your children?
- Do you want to pay university tuition for your children?
- What are the funeral costs?
Isn’t ten times my income a lot?
It may seem a lot, but you have to take into consideration variables such as inflation, which means that the money won’t go as far in the future as it does today.
Only you can really answer that question, and talking to our advisers can help you come to that decision. Life insurance is all about paying out money when you have passed away, therefore if you are single and have no dependants you should question whether you really need life insurance.
However, if you do have dependants, such as a partner and/or children (or anyone else who relies on your income) then you must ask yourself what would happen to them when you pass away. If they would struggle to pay the mortgage, pay bills, buy food, raise the children properly, then life insurance is something you can do to help this.