Can you get extra benefits with life insurance?

May 25th, 2022
Can you get extra benefits with life insurance?

Anyone with dependents or family should consider putting a life insurance policy in place. The right life insurance policy can help protect your family from financial hardship should the unthinkable happen. Life insurance – which pays out a lump sum upon your death – can help to settle outstanding bills or debts, cover daily expenses and mortgage payments and cover for lost income upon your death. The average life insurance pay out in the UK is Ł31,000 per person [1], showing just how important and helpful such a pay out could be to those you leave behind.

However, there things you can do to make your life cover work better for you? We explore how you can add on certain benefits with life insurance policies to give yourself, and your family, optimum protection.

What are the benefits of having a life insurance policy in place?

  • Provides financial security for your family.
  • Can replace your lost income, which is especially important if you are the household’s main earner.
  • Helps to pay off your debts.
  • Assists with funeral expenses.
  • Gives you and your family peace of mind.

Alarmingly, around 8.5 million UK adults with dependents do not have a life insurance policy in place [2]. Free Price Compare can help you search hundreds of providers to find the best life insurance policy for you, whether that is a term policy which covers you for a set period of time or a whole life policy, which applies for the whole of your lifespan. We can also help you find and compare those extra benefits that make your life insurance policy work better for you. These extra benefits can include:

Critical illness cover

Critical Illness Cover can exist as a stand-alone policy but in most cases, it is used as an ‘add on’ to a life insurance policy. Under Critical Illness Cover, you can receive a tax-free, lump sum pay out if you are diagnosed with a medical condition which is defined within the policy. This type of cover does not pay out upon your death but does pay out if you are diagnosed with a serious illness, disease or a disability. Cancer, heart attacks and strokes are among the most common conditions covered under policies. When taking out Critical Illness Cover, you need to decide upon a cover amount and your monthly payments will be set accordingly.

The benefits of Critical Illness Cover are clear. It offers you protection if illness renders you unable to work, providing a pay out which can be used to cover mortgage costs, household bills and any debt payments. The money can be used however you like and in the way that is most beneficial to you. Having Critical Illness Cover in place can help to give you the peace of mind that your loved ones will be looked after should you become seriously ill. Also, as life expectancy is now higher (new figures from the Office for National Statistics show it stood at 79 for men and 82.9 for women in 2018 to 2020), a person may be more likely to suffer a medical issue within the course of their longer working life [3].

There are also some downsides to critical illness cover too. It only tends to pay out once and if you are unable to return to work, that money may not last forever. It is also important to check your critical illness policy very carefully to establish exactly which conditions are covered as not all will be. Also, if you were to become seriously ill again at a later date, critical illness cover would not pay out again. Once a pay out is made, the policy is considered terminated.

Can I get critical illness cover with an existing medical condition?

This depends very much on your insurer. Existing medical conditions will be covered by some policies but not by others. If they are, it may cost you more to take out an insurance policy. Or you may have to find a policy that does not include your existing medical condition within its terms.

Terminal illness benefit

Another type of life insurance bolt on or additional (often free) benefit is terminal illness benefit, which is included in most term life insurance policies. This type of cover pays out in the event you are diagnosed with a terminal illness. Getting the payment when you are still alive can allow you, the policyholder, to make financial plans and ensure your loved ones are looked after.

Evidence of your diagnosis does need to be provided to your insurance company and a medical officer would need to be assured that death is likely to occur within a certain period named on the policy document. Essentially, a terminal illness pay out is an early death pay out – not an extra pay out. It is what the insurance company would have paid upon your death but paid earlier because death is likely within the dates of the policy. Once the benefit is paid, no further payments will be made to the policyholder. But do note that you are not obliged to make a claim if you are diagnosed with a terminal illness. You may instead allow your policy to run until your death and your beneficiaries will receive a pay out as normal.

Accidental death benefit

Accidental death benefit can be taken out alongside a life insurance policy or on its own and is now offered by many insurance companies in the UK. This kind of insurance pays out a cash sum if you die within 90 days of an accident. It does not pay out in the case of suicide, death while taking part in a dangerous action or alcohol or drugs.

As it is not based on your medical condition, Accidental Death Benefit can be added to a policy for free to provide you with some level of protection while your application for life insurance is being processed.

Guaranteed Insurability Option

Another bolt-on that can be added to your life insurance policy is a guaranteed insurability option. Your circumstances may change over time, particularly if you take out a life insurance policy when you are quite young. With a guaranteed insurability option in place, you can adapt your cover amount without the need for any further medical underwriting. This makes it easier to adapt your policy in the event that you have children, take on a bigger mortgage, your income increases or your relationship status changes, for example.

Waiver of Premium

You may also choose to add a waiver of premium insurance to your life cover but this will almost always increase the cost of your cover. This type of benefit kicks in if illness or injury renders you incapable of paying your monthly premiums. If you do not pay your monthly premiums, your life insurance will typically be cancelled. With a waiver of premium, you can continue to cover your monthly premiums and ultimately keep your policy in place to protect your loved ones in the future.

Having life insurance paid into trust

When taking out life cover, you may choose to have your life insurance paid in trust. A trust is an asset set aside to benefit a particular beneficiary or group of beneficiaries. The trust is managed by a trustee until the beneficiary is intended to benefit from it. Doing this allows you to make sure the money paid out under your life cover is used exactly as you want it to be. A common example is to put a life insurance pay out in trust for a child beneficiary who can then get access to the money when they turn 18.

The benefits of writing in trust are that it gives you more control over your assets. If not in trust, your life cover pay out could be used to pay off debts instead. It is also a quicker way for your loved ones to access money as the trust removes the need for beneficiaries to get probate, substantially reducing the time frame of the process.

Writing life insurance in trust is also an effective way to protect your beneficiaries from Inheritance Tax. It means your life insurance pay out is not included as part of your estate. Inheritance Tax, paid by a person who inherits money or property, currently stands at 40% so can create a huge bill for your loved ones. According to government figures, 3.7% of UK deaths in 2018 to 2019 resulted in an Inheritance Tax charge [4] . Writing life insurance in trust means that your beneficiaries may face a smaller bill as this will not be considered part of your estate.

Death in service benefit and how it impacts on life insurance?

Some people may have death in service benefits in place through their employer. This is a free benefit offered by some firms which pays out a tax-free lump sum (usually based on your salary) should you die while still on the payroll.

However, you should carefully consider whether this would provide enough coverage for you. In many cases, it is prudent to have this alongside a separate life insurance policy. Death in service benefit pay outs are based on your salary (usually two or four times your annual salary) and may not be enough to provide for your family in the long-term. In addition, if you have death in service benefit through your employer but retire or no longer work for that company, you may not get the same benefit or level of protection. Remember that the older you are, the more expensive life cover can be so putting a life insurance policy in place when you are younger can reduce the cost of it.

Can you have 2 life insurance policies in the UK?

Some types of insurance, such as home insurance and car insurance, restrict you to just one policy. This is not the case with life insurance. You can legally have more than one life insurance policy – in fact, you can have multiple life insurance policies. Whether this is something that would actually prove beneficial to you really does depend on your circumstances. Just because you can have more than one life insurance policy does not mean that you should. In many cases, if you feel that you need greater life cover, it is enough simply to contact your current provider and change the terms of your policy. You may be able to add on some benefits which can give you what you need.

There are, however, some specific cases in which you may need more than one life insurance policy. For example, you may need a life insurance policy plus a key person insurance policy, which provides a lump sum should someone who is crucial to a company’s success pass away.

Whatever benefits you want to achieve with your life cover, Free Price Compare can help. We search quotes from some of the country’s leading providers to find the right cover for you. Simply tell us some details abut yourself, your health and your history and within seconds, you can have access to scores of quotes.

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