Life Insurance

Do you know how life insurance works?

Life insurance can help protect you and your family’s finances, should anything bad happen to you. Perhaps you’ve already taken out a policy or are considering doing so – but do you really know how life insurance works? Take our quick life insurance myth buster quiz to find out.

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Do you have life insurance already?

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Life insurance pay-outs are subject to tax

False

There is no income tax or capital gains tax on the money your beneficiary/ beneficiaries receives from your life insurance policy when you die. Inheritance tax could be payable however, if the pay-out is counted as part of your estate. Find out more with our guide.

For my life to be insured, I will always need to pay my premiums

True

Failing to make your monthly premiums will invalidate your life cover, which simply means it will not pay out if you die.

One outside exception is senior life insurance – which can be taken out between the ages of 50 and 80 and runs for the remainder of your life. Some of these policies provide free cover once you reach age 90.

New life insurance policies won’t cover coronavirus

False

As things stand, there are no pandemic death-related exclusions within life insurance policies. In other words, any new life insurance policy you take out will pay out if you die of coronavirus – so long as you have been honest in the application.

Life insurance is a condition of getting a mortgage

False

While you won’t need life insurance as a condition of getting a mortgage, it’s a perfect trigger to get a policy in place.

A decreasing-term life insurance policy is designed to ensure your mortgage is paid off in the event of your death – the pay-out reducing in line with the outstanding mortgage balance. This way you know your loved ones can remain in the family home without having to worry about how they will pay for it.

I need to tell my life insurer I am pregnant

False

If you already have life insurance, you won’t need to tell the provider you are pregnant. Your policy will remain active, and the cost of your premiums will not change. That said, you may want to increase your level cover if you are starting or expanding your family.

Taking out life insurance tends to become more expensive the older you get

True

The average life insurance premium for a non-smoking 16 to 24-year-old is £6.60 a month. This rises to £24.34 for non-smokers aged between 55 and 64.

*51% of customers who purchased level term life insurance (without critical illness cover) with MoneySuperMarket achieved a quote based on the above figures (data from July 2019 to June 2020).

I can opt to write my life insurance policy in Trust

True

You can write a new life insurance policy in Trust or put an existing policy in Trust. This means that the pay-out will not form part of your estate when you die so will not be subject to inheritance tax. However, control of your policy will lie entirely with the Trustee/s so seek independent advice.

Life insurance might not always be the best option for me

True

If you have no dependants, other types of cover – such as critical illness – could be more suitable as it would pay out if you were unable to work through a long-term serious illness.

You could even have life cover in place already through your employer – known as death in service benefit. Although this will only be valid for as long as you work at the company.

I can still get life insurance if I’ve had coronavirus

True

However, if you have had coronavirus in the last 30 days, the insurer may ask you to postpone your application. Find out more with our guide.

Life insurers don’t have a good track record for paying out claims

False

Life insurers paid out over 97% of claims in 2019, according to the Association of British Insurers. In the minority of cases that didn’t pay out, non-disclosure (failing to disclose all relevant details in the application) was the main reason.

I need to let my insurer know if my health changes, even if I don’t want to change my policy

False

Your health is assessed at the time you apply, so if it changes after your policy has started, you don’t need to tell the insurer. Any new life insurance application you make would be assessed on your health at the time you apply.

I’ve quit smoking, so I’ll pay less on my life insurance

True

You will need to have quit smoking (and other nicotine products) for at least 12 months to be classed as a non-smoker.

I can compare life insurance quotes online

True

Just like car and household insurances, it’s easy to compare life insurance premiums from a range of providers online. You’ll need to answer a simple set of questions around your health, circumstances and cover you require.

Bear in mind your quoted premium is only an indication, though. The final price of your life insurance could be different depending on extra information that’s required by the provider.

You scored...

25

Knowing about life insurance is important, because it will help you understand if you need it or not. If you’re worried your family won’t have financial support if something happens to you, it’s time to find a policy. Browse our life insurance guides for more information, and when you’re ready compare quotes with us.

To get a quote, just tell us a little about yourself, your circumstances and the cover you need, and we’ll put together a list tailored to your requirements.

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Life Insurance quiz questions on https://www.moneysupermarket.com/