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Did YOU Know....

Choosing Life Assurance

Talking to a professional adviser is the best way to determine your protection needs as they change with your circumstances. It makes good sense, however, to go to your meetings armed with information to ensure the meeting flows smoothly. The questions posed and answered below are frequently asked questions; knowing the answers should make your meeting more productive.

1. What happens if I am ill when I need life assurance?
   It doesn't necessarily mean that you won't qualify for some sort of cover. Depending on the illness, it may have no effect on the cover you want, or the level of cover may be reduced, or the company may suggest a different type of policy to the one you applied for. Sometimes the company may suggest you wait until you have recovered before applying again. However, much will depend on the stage of your illness, your medication and their experience of underwriting this type of 'risk'.

2. Does smoking affect my application?
   Yes. Generally speaking, companies charge higher premiums if you smoke, and even if it is less than a year since you have smoked.

3. How much cover can I have?
   Perhaps the starting point should be, 'How much cover do I need?' In theory there is no upper limit to the amount of life assurance you can buy, but inevitably the company will wonder why you are taking out a million pound policy if your income is only £10,000 per annum. None of their business, you might think. On the one hand you are right, how you spend your money is up to you. On the other hand, though, the company's underwriter (the person who assesses the risk of each proposal) may have had poor experience of low income/large sum assured situations. Once you have arranged sufficient protection to cover current outstanding liabilities (credit cards, bank loans, mortgage, school and university fees, other financial commitments), then you should talk with your adviser on whether additional sums are needed for future commitments.

4. What if I lose my job and can't afford the premiums?
   Generally speaking the cover ceases on simpler policies, but, depending on the policy, premiums may continue out of reserves until they are used up, at which point the policy ceases. The policy may also offer a 'premium waiver' option, which is basically a premium insurance. As you would expect, you pay extra for this, but means that in certain circumstances, if you are unable to pay the premiums, they will be paid for you for an agreed period.

5. Can I increase the sum assured once the policy has started?
   Some policies give this option, although it generally means an increase in the premium at the same time.

6. Who will own the policy when I die?
   When you die the policy ceases, so it would be more correct to be concerned about the destination of the policy proceeds. This will depend on how the policy was set up i.e. is it in your name? On the life of someone else? In trust? The answer may be different again if it is the type of policy that pays out before death. In general, the proceeds will go to whoever you want to receive them. The question that hangs over the whole exercise is - 'will tax be payable?' If the policy isn't set up in the right way, tax could be payable, especially if the proceeds go into your estate on your death.

7. Do I get money back if I cancel my policy?
   The answer, again I'm afraid, is 'It depends.' It depends on the type of policy and how long you have been paying premiums into it. Generally speaking, you might expect money back only from those policies that incorporate an element of investment, but only once the initial expenses of setting up the policy have been covered. A simple term assurance policy would not repay anything if you cancelled it.

8. How often should I review my policies?
   As often as your circumstances change. Our needs change as our circumstances change, and if we are to protect our interests and the interests of those for whom we are responsible, we must plan ahead, within our budget, for the changes we can anticipate, as well as for those we can't.
   
   See examples of changing needs: 'Lifestages: minors through to retirement'; 'Case studies'; Brian Riley'.

Because of the complexity of the market, simple questions don't always have a simple answer, but talking to a professional adviser could lead to a solution.

REMEMBER You should not use any information contained on this page as the basis of any action until you have discussed matters with your financial adviser.