The 10 Biggest Life Insurance Myths Revealed
Catherine Alexander
Partner
Life insurance could pay out a cash sum if you were to pass away during the term of the policy, or if you were diagnosed with a terminal illness. It is a safety net to ensure that your loved ones are protected, for example, the money could be used to pay off the mortgage on the family home or pay bills and loans.
Research conducted by Direct Line Life Insurance showed that in Britain, 63% of people do not hold a life insurance policy because they think it is too expensive, but twice as many people pay for a monthly subscription service and are willing to pay around £25 on average. While factors such as age, lifestyle and the level of cover will affect the monthly premium, many people seem unaware that life insurance policies can start from under £10 a month.
To try and help dispel some of the myths around the topic of life insurance, we’ve taken a look at some of the most common concerns.
It is going to be expensive
The most common myth surrounding life insurance is that it’s too expensive. But this simply isn’t true. Some forms of life insurance are more expensive than others, but there is cover available to suit every budget. The cost of life insurance depends on a number of factors which include:
Age
Medical history
Smoking status
Weight/BMI
Policy length
Cover amount
I don't need it because I am young
You may not need life insurance if you’re single, have no one that depends on you financially and have no large financial commitments. However, taking out life insurance while you are younger can often be the best time to do so. This is because insurers take into account age and medical history during the application process, and when you are young you pose less of a risk and will have access to better premiums. As you get older you will find that the premiums will increase.
I have death in service benefit with my employer
While having death in service benefit can help to reduce the amount of cover you may require, it doesn’t mean you don’t need life insurance at all. While this is usually a generous benefit - most commonly a multiple of your salary, it is unlikely to cover all your financial commitments. Also, if you stop working for your employer the cover ends, and you have no guarantee you will get the same cover with another employer. Therefore, a separate life insurance policy can help plug any gaps in your cover.
I have existing medical conditions so I cannot get cover
It’s unlikely that you’ll be declined due to having a pre-existing medical condition. Insurers will take your personal circumstances into consideration, if your condition is mild then your premiums may not be greatly affected - in some cases you may still get standard terms. With more severe conditions insurers my increase the premium (known as loading) due to the increased risk.
Insurers don’t pay out
A common misconception about life insurance is that insurers don’t pay out, but this isn’t true. Only in rare circumstances will insurers deny a pay out. Statistics from The Association of British Insurers shows that in 2022, 98% of all protection claims were paid out, totalling £6.85 billion.
I need it for my mortgage
You’re not legally required to take out life insurance to protect your mortgage, but as a mortgage is the largest debt you’ll likely have in your lifetime, it makes sense to protect it. Think about what would happen if you were to pass away, could your family afford to continue making the mortgage repayments? A life insurance policy can be used to pay off your mortgage in full and ensure your loved ones can remain in the family home.
Taking out Life Insurance is too confusing
Securing life insurance is actually a straightforward process. The basic steps in taking our a policy are as follows:
Find a provider and start the application process
Decide on a sum assured and how long you’d like to be covered for
Compare the different policy options
Secure the policy that best meets your needs
Once cover is in place, continue to pay your monthly premium
If you pass away during the policy term, your loved ones can make a claim and a pay out will be issued
Your financial adviser will always be happy to help you look at the best options to meet your needs and answer any questions you may have about the process.
I will need a medical examination to get life insurance
While insurers do have the right to request that you undergo a medical examination during the application process, it’s rare for this to happen. They will usually only do so if you disclose a severe pre-existing medical condition or have other high-risk factors. This is so they can better understand your health and wellbeing situation before offering cover. The exception to this is if you are taking out an over 50s plan, these policy do not require you to disclose any medical information at all, so this could be a good option if you fit into that age bracket.
If I’m fit and healthy, I don’t need Life Insurance
It doesn’t matter how healthy you are now, life is unpredictable. We rarely expect to receive a life-threatening diagnosis and we never think that we’ll fall victim to a serious accident. The point of life insurance is to make sure that your loved ones have some financial protection in place should something happen to you unexpectedly. It helps you prepare for the worst-case scenario, allowing things to carry on following the loss of a partner, spouse or parent.
I’m not the primary breadwinner in my household, so I don’t need Life Insurance
If you’re a stay-at-home parent or you earn a lot less than your partner or spouse, you might feel as though you don’t need life insurance. But if you pass away, would your partner have to pay for childcare costs or other help? Would they struggle to keep up with mortgage or loan repayments? You still make a significant contribution to the lives of your family.
This article isn’t personal advice. If you’re not sure whether a course of action is right for you, ask for financial advice.
