The global COVID-19 pandemic has led to a significant increase in life insurance applications as those with dependants who rely on them seek to secure their financial future.
Generally speaking, people are only prompted to consider life insurance after a significant life event, such as buying a property, getting married, losing a loved one and now a pandemic, however there are still many misconceptions surrounding life insurance today, including;
- Insurers do not pay out on claims
- COVID-19 has impacted one’s ability to secure life insurance
- You cannot get life insurance if you have a pre-existing medical condition
- Stay-at-home parents don’t need life insurance.
We asked award-winning broker Reassured to explore the 6 most common life insurance myths they encounter;
MYTH – Life insurance premiums are very expensive
False. The most common myth surrounding life insurance is that it is too expensive for the average adult.
You may be surprised to learn that it’s possible to take out appropriately £200,000 life cover for under 20p-a-day, although it is true that some forms of life insurance are more expensive than others.
Ultimately, the greater the likelihood of a claim, the higher your monthly premium will be. However, if you are young and a non-smoker with no pre-existing medical conditions you pose a low-risk and therefore premiums will be cheap.
Whichever insurer you choose, the price of your premium will depend on a variety of key factors;
- Your age
- Your smoking status
- Your medical history
- Your family’s medical history
- Your weight/BMI reading
- Policy length or the term
- Cover amount or the sum assured
MYTH – You cannot take out life insurance if you have a pre-existing medical condition
False. It is very unlikely that you will be declined outright as a result of having a pre-existing medical condition.
When applying for life insurance if you have a medical condition, insurers will take your personal circumstances into consideration. If your medical condition is mild and has little effect on your everyday life, your premiums are unlikely to be greatly impacted and, in some cases, it could be possible to take out cover on standard terms.
If your medical condition is more severe, it is still possible to secure cover, although your monthly premiums will likely be higher (or loaded) due to the increased risk you pose and your policy may need to undergo manual underwriting.
In more complicated cases, it can still be possible to take out cover through the help of a specialist insurer, such as The Exeter. Specialist providers are better equipped to provide cover to high-risk applicants.
MYTH 3: Life insurance providers do not pay out
False. A very common misconception about life insurance is that providers do not pay out on claims, however this simply is not true.
Only on very rare circumstances will insurers deny a pay out. Research from The Association of British Insurers (ABI) states that in 2020, 98% of all protection claims were paid out, totalling over £6.2 billion.
A common reason for an insurer not paying out is due to non-disclosure. This is when an applicant misleads the insurer during the application process and is not completely open and honest with their answers, often in order to try and secure a lower premium.
MYTH – Stay-at-home parents do not need life insurance
False. The loss of a stay-at-home parent could have a signifiant financial impact on a family.
If a stay-at-home mum or dad were to pass away, could the breadwinner afford to cover additional childcare costs or would they need to cut back on working hours, perhaps even change career to enable them to look after the kids?
It is estimated that the unpaid work of a stay-at-home parent totals a staggering £108,937 As a result, often it is important for both the breadwinner and stay-at-home parent to have cover protection. You can achieve this either by taking out a joint life insurance policy or alternatively, if budget allows, two separate single policies.
MYTH – You need life insurance to secure a mortgage
False. Legally, you are not required to take out life insurance to protect a mortgage. That said, as a mortgage is likely to be the largest debt you will have in your lifetime, it makes sense to protect it.
If you were no longer around, could your partner afford to continue to maintain the mortgage repayments every month?
An adequate life insurance policy could provide the necessary funds for the mortgage to be paid off in full and ensure your loved ones can remain in the family home at what is a very challenging time.
Whilst not a legal obligation, some mortgage lenders may request that you take out life cover as a precondition for allowing you to borrow the proceeds. Often lenders will push for you to take out cover through their preferred life insurance partner, however it is unlikely you will get the best deal by doing this and it is best to compare multiple quotes from different providers.
MYTH – You cannot get life insurance now because of COVID-19
False. Surprisingly, the COVID-19 pandemic has actually had little effect on life insurance. The only changes at this time are that you will likely be asked some specific COVID related questions as part of the application. So, rest assured you can still secure affordable life insurance even if you have had Coronavirus.
If you have tested positive for COVID-19 during the last 30 days it is unlikely that your application will be declined, however it may be postponed. This is so that you can make a full recovery before being offered cover protection.
Hopefully the above article has dispelled some of the common myths surrounding life insurance and helped inform you.
The past two years has been extremely challenging for many families both from an emotional and financial perspective, showing all of us just how fragile life can be.
Whilst a life insurance pay out can obviously never replace a loved one at least it can help lessen the financial burden for your loved ones in a worst case scenario and provide you with peace of mind.