Could you give an example of underestimating life cover?


Imagine someone aged 39 on a basic salary of £40,000. They have a partner and two children and currently have life cover of £100,000, which may sound like a substantial amount. However, this level of cover is probably insufficient.


Aged 39, they are likely to work for at least another 21 years. Allowing for a salary increase of only 2% per annum their total earnings will comfortably exceed £1 million during this time. Therefore, £100,000 of cover may not be enough to allow the family to enjoy their current lifestyle for many years. It is always worth taking the time to review how much life cover you have.


How can you ensure your dependants obtain funds quickly?


When you die your bank accounts are frozen and your assets (including money paid out from a policy) may not be readily accessible.


There are simple ways around problems of this nature. What is important is determining how the policy should initially be set up and who should have access and control of your funds over the short and long term. An Old Mill financial planner can take these factors into consideration and provide you with the right solutions.


Should employees ask their employers about cover?


Absolutely. It is important to know if your employer provides you with life cover and the rules that they have in place concerning an extended absence from work due to ill health. Many people are unaware how long they will be paid for should they fall ill. If you know these simple facts then planning becomes much easier and cost savings can be made. For example, if you know that your employer will pay you for the first 6 months of sickness


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then any insurance payments can be deferred until you cease to be paid. This will make the insurance premiums less than for a policy that pays out after 3 months of absence.


What affects the cost of life insurance? The main factors that determine the level of premiums are the amount of cover required and the length of time that cover is required for. Lifestyle factors also have a major influence, so your sex, age, occupation and health will also be taken into consideration.


Over the past few years we have seen a change in the amount of questions asked surrounding health. The questions are now more in-depth. In addition to smoking habits they can also focus on Body Mass Index (BMI) and the number of alcoholic units consumed during the week and at weekends. Obviously the answers given will influence the cost of life cover.


Can you reduce the cost of life insurance while maintaining the same cover? Yes. One of the easiest ways of doing this is by giving up smoking. The case study on this page helps to demonstrate the dramatic effect that this can have. It’s important to remember that the amount of time that you have to have given up smoking will vary from policy to policy. This may be as little as a year or as long as 5 years.


Mr X was born on 30 June 1971 and requires £300,000 of life insurance for the next 21 years. As a smoker his monthly premium is £51.40.


Mr Y was born on the same day and requires £600,000 of life insurance for the next 21 years. As a non-smoker his monthly premium is £49.60.


Source: Avelo Exchange May 2011.


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