The last two years have been extremely challenging both economically and emotionally for many dads across the globe. Unfortunately, the COVID-19 pandemic has devastated thousands of families and forced some to consider how their loved ones would cope if they were no longer around to provide. This has led to a surge in life insurance applications. 

But what is life insurance? 

Life insurance is simply a financial safety blanket for a worse-case scenario. It pays out a cash lump sum if you were to pass away during the term of the policy. The proceeds can be used as your beneficiaries wish, but are commonly used to clear a mortgage, cover family living costs, pay funeral costs or provide an inheritance. 

However, us dads are not always the best at arranging necessary life cover, therefore we have compiled our top tips below…

 

1. Be proactive and secure cover whilst you are still young 

The cost of life insurance is calculated based on the level of risk you pose to the insurer or put another way, the likelihood of a pay out. The greater the risk, the higher the premium.

Therefore, as we age the cost of our monthly premium naturally increases. 

As a result, it is a good idea if possible to secure life insurance as a young adult, enabling you to lock in a super-low premium for an extended term, (up to 40 years). 

For example, a non-smoker in their 20s could secure approximately £200,000 of cover from just 20p-a-day. This cover could then protect your loved ones as your personal circumstances change, buying your first home, getting married, having children etc.

 

2. Joint cover or two separate policies? 

When in a long-term relationship many couples automatically take out joint life insurance, but is this the right option? 

The answer is, it depends. 

A joint policy will normally be around 35% cheaper compared with paying for two separate policies - and that is the main benefit. However, it will only ever provide one pay out before expiring. This then leaves the surviving partner without any cover. 

In contrast, if you have two single policies this could provide two separate pay outs; potentially providing double the coverage. If you have young children, this extra financial protection could be extremely beneficial. 

Lastly, as we know, relationships can breakdown. However, unfortunately it is impossible to divide a joint policy, so you would have to come to an agreement to either continue paying your premiums as a couple or simply cancel it. With two single policies, this would obviously not be an issue.

 

3. Take the time to consider how much cover you need 

The greater your cover amount (sometimes referred to as the sum assured), the higher your premiums. Therefore, it is important to take the time to consider exacting how much life insurance you need, ensuring you are not under protected and therefore leaving your loved ones vulnerable, nor over protected and paying for more cover than you require. 

Some key financial considerations can include; 

• Remaining mortgage debt/rental bills

• Monthly family living costs

• Utility bills

• Funeral costs

• Childcare fees

• Understanding debt

• School/university fees 

Also take some time to consider the required policy length, how long do you need cover for? The longer the term, the greater the chance of a claim, the higher the premium. Usually, you will want to have cover in place until your children are financially independent and/or until your mortgage is paid off.

 

4. Always be open and honest 

Whilst is can be tempting to withhold certain information during the application process in order to secure a cheaper monthly premium, it is important to always be 100% open and honest. 

Lying or withholding information is known in insurance as non-disclosure and it is one of the most common reasons for a claim to be denied. This would render your selfless investment a complete waste of money. It could even be regarded as a criminal offence (insurance fraud). What’s more, an insurer has the legal right to investigate your passing if they consider it to be suspicious. For example, they could ask your GP for your medical records.

 

5. Compare quotes from different insurers 

Insurers employ different underwriting criteria and as a result the cost of your cover can vary wildly from one provider to the next. That is why it is vital to compare multiple quotes to secure the best available deal. 

You can research quotes yourself, although this can be quite time consuming. Alternatively, you can use a comparison website or a reputable life insurance broker. 

The benefit of using a broker is that they can help unpick the jargon, guide you through the application process and help you find the most suitable policy type. Some brokers, such as Reassured, don’t even charge you a fee for their service, (instead they earn their money direct from the insurer through commission).

 

6. Write your life insurance in trust 

The proceeds from your life insurance payout form part of your legal estate, which is subject to inheritance tax. However, there is a way to avoid this by writing your policy in trust. 

When you write your life insurance in trust you sign over the rights of your policy to a trustee/s to administer on your behalf, much like the executor of a Will. By doing this the proceeds from your life insurance avoid forming part of your estate, and therefore are not subject to inheritance tax. 

What’s more because your loved ones will not have to wait for probate to be granted before funds can be released, they will receive the proceeds faster too. 

Writing your policy into trust is something all major insurers offer, and it should not cost you anything.

 

7. Factor in any workplace benefits 

You may receive workplace benefits through your employer, such as death in service. This usually pays out 3x or 4x your annual salary to your family if anything were to happen to you during your employment. 

Whilst this is unlikely to be substantial enough to clear your mortgage or cover long-term living costs, you could factor in this benefit to reduce the level of personal cover you require. This in turn will reduce the cost of your monthly premiums. 

It is important to understand that if you change your employer these workplace benefits do not travel with you. 

If you are self-employed, read our article on comprehensive insurance article.

 

Has COVID-19 affected life insurance? 

Surprisingly, at the time of writing this article, COVID-19 has not had a major impact on the life insurance sector. Insurers are still paying out on claims and accepting applications, whilst premiums have not yet been noticeably inflated. 

The main difference the pandemic has had is to the application process, where you will be asked COVID specific questions, such as are you displaying any symptoms or have you ever tested positive. 

Even if you currently have COVID, you are unlikely to be declined outright. Instead, it is likely that your application will be postponed until you have made a full recovery.

 

In summary 

Purchasing life insurance is one of those tasks that is very easy to put off for another day. However, if the last two years has taught us anything it’s that life can be fragile and that it is important to seize the day. 

As a dad, our family are the most important thing in our life. Whilst a parent can never be replaced having adequate life insurance protection in place at least ensures the financial stability of loved ones, whatever the future may hold.