Life insurance

Life insurance policies pay out a lump sum of money when you die. There are different types of life insurance. These include:

  • level term insurance
  • decreasing term insurance
  • increasing term insurance
  • whole of life insurance
  • endowment insurance
  • death-in-service benefit
  • over-50s plans.

Sometimes life insurance only pays out if you die during a certain period of time.

Employers may offer life insurance to employees. It is usually available to every employee and normally covers up to a set amount. Speak to your human resources (HR) department at work for more information.

If you have had or are living with cancer, you will usually be offered a higher premium than average when buying life insurance. Or you may be refused cover. The type of cancer you have and the stage it is at will affect whether you can get life insurance or not. It will also affect the terms of the cover.

If you have questions about your insurance policies, contact your insurer. You can also speak to our financial guides for free by calling 0808 808 00 00.

What is life insurance?

Life insurance is a type of insurance that pays out when you die. Sometimes it only pays out if you die during a certain period of time. This is called the policy term.

Life insurance is helpful for two main reasons:

  • It can pay off debts left behind, such as a mortgage.
  • It can provide money for your family after you die.

Many life insurance policies include terminal illness cover. This means the insurer will pay out the full amount of the cover straight away if you are expected to live for less than 12 months. You can keep the payout even if you live longer. You can use the money for any purpose. You should check with your insurer to see whether this is included in your policy.

Some life insurance policies will also pay out if you are diagnosed with a critical illness.

Employers may offer life insurance to employees. This is sometimes known as death in service benefit. It is usually available to every employee, whatever their state of health. It normally covers up to a set amount. Speak to your human resources (HR) department at work to find out more.

Our critical illness cover will be paid in full. I know now my family will have a house that is paid for and enough in the bank to live on.

Simon


Types of life insurance

There are lots of different types of life insurance. If you have questions about your insurance policies, contact your insurer. You can also speak to our financial guides for free by calling 0808 808 00 00.

The main types of life insurance are listed below.

Level term insurance

This pays out a lump sum if you die within the policy term. You agree the lump sum amount when you set up the policy, and it does not change. If you live to the end of the policy term, you do not get any money back.

Decreasing term insurance

This is often taken out with repayment mortgages. The amount you are covered for decreases as you pay off more of your mortgage. If you live to the end of the policy term, you do not get any money back.

Increasing term insurance

The amount you are covered for either increases by a fixed amount each year, or increases in line with inflation. If you live to the end of the policy term, you do not get any money back.

Whole of life insurance

This pays out a lump sum at whatever age you die. Some older policies used part of your premium to build up an investment, for example in shares or property. This would cover the higher cost of the insurance cover when you are older. However, with these policies, there is a risk that the part of the premium that has been invested will lose value. This means your premiums might have to increase so that you get the same level of cover.

However, most whole of life insurance policies now offer fixed premiums for the policy term, or are reviewed after a period of time. This is usually 10 years.

Endowment insurance

This pays out a lump sum if you die within the policy term. If you do not die within this time, it pays out an amount at the end of this period. Part of the premiums you pay will be invested, for example in shares or property. The value of this investment can go up or down, so the amount of this payment is not guaranteed.

Death-in-service benefit

Many employers offer a type of life insurance called death-in-service benefit. This provides a lump-sum payout if you die while working for that employer. This is usually between two and four times your annual salary. In most cases, the payouts go into a discretionary trust. Your employer will ask you to complete an expression of wish form to say who you would like the lump sum paid to.

If you are thinking about giving up work due to ill health, it is important to check with your employer what would happen to any life insurance cover they provide.

Over-50s plans

Over-50s plans are whole of life insurance policies (see above) that do not require medical underwriting. This means you will not be asked questions about your health when you apply for the policy. The payout is also not affected if your health is poor when you take out the policy.

If you die of natural causes within 2 years of starting an over-50s plan, you will not get a full payout. But there may be a refund of the money you have paid in.

For these reasons, over-50s plans can be suitable if you have existing health problems. They are mainly for people aged 50 to 85 who do not already have a life insurance policy. People aged 50 to 85 who have life insurance can also buy them.

The monthly payments are usually an affordable amount, but the final payout may not be large. You must keep up the monthly payments, or the cover will end. So if you live for many years after you take out the plan, you may end up paying in much more money than is paid out when you die. If you miss a payment, you may no longer be covered and the policy may not pay out when you die.

For these reasons, buying a medically underwritten whole of life insurance policy can be better value than an over-50s plan.

Covering funeral costs

You may choose to take out an over-50s plan if you are saving money for a certain reason, such as a funeral. You may do this if you want to keep this separate from your other life insurance.

Some policies include an option to make a payment directly to a funeral director when you die. This is sometimes called a funeral benefit option. It can give a slightly higher payout.

Some people prefer to pay for their own funeral using a pre-paid funeral plan. These may be better value for money, but you need to make sure you ask the following questions:

  • Does the plan cover all the costs of the funeral?
  • What happens if the funeral home goes out of business?
  • What happens if you die while overseas?

Waiver of premium benefit

A waiver of premium benefit means you will not have to pay your insurance premiums if you cannot work because of illness or disability.


Buying life insurance

Mortgage providers often try to sell people life insurance when they take out mortgages. You do not have to buy life insurance from your mortgage provider to get a mortgage.

If you are thinking of buying life insurance, it is always a good idea to contact your mortgage provider first. Ask them if you have life insurance included in your mortgage repayments.

It is important to search for the best insurance for your situation. Getting quotes from a range of insurance providers can help you get life insurance cover that meets your needs. It could also help you save money. You can use a price comparison website or talk to an insurance broker or financial adviser. Call 0808 808 00 00 to speak to a financial adviser.

Life insurance through an employer

Many employers offer life insurance to employees through their death in service scheme. Cover is often provided up to a set amount of money for employees who have joined the scheme. This cover is not affected by any health conditions they may already have.

Contact your human resources (HR) department at work to find out whether your employer offers a life insurance scheme that you can join.

Putting a policy in trust

When you die, there may be inheritance tax to pay on your estate. Your estate is everything you own at the time of death, minus anything you owe. For example, this may include your mortgage.

Normally, your estate would also include any payout from a life insurance policy. But you can arrange to have most life insurance policies written in trust. This means that instead of the payout being part of your estate, it goes directly to your beneficiaries. Beneficiaries are people who get your money or possessions when you die. This could be your partner, child, parent or friend.

Doing this may reduce the amount of tax due on the payout. It also makes sure whoever you have chosen to receive the payout will get it. Not putting a policy in trust means your beneficiaries will have to wait until your estate is settled after your death. This could take months, or even years.

Ask your insurer or financial adviser about putting a life policy in trust. There is usually no extra charge for doing this.


Cancer and buying life insurance

If you have had or are living with cancer and you want to buy life insurance, you will usually be offered a higher premium than average. Or you may be refused cover altogether. Life insurance policies with an exclusion for cancer-related claims are rare.

The type of cancer you have and the stage it is at will affect:

  • whether or not you can get life insurance
  • the terms of the cover.

The insurer will want to see your medical reports. They may ask you to have a medical examination.

Some insurance brokers or financial advisers specialise in arranging life cover if you have an existing health condition. But the decision will always depend on your personal situation.

If you have questions about buying life insurance, you can speak to our financial guides for free by calling 0808 808 00 00.

If you have fully recovered from cancer, you might find it more difficult to get life insurance in the first few years after finishing treatment. After this time, the premiums may be high at first. But for most cancers, over time, the risk of the cancer coming back gets lower. This means that the cost should come down.

There are laws that protect people from unfair discrimination when they have or have had cancer. We have more information about unfair discrimination and insurance.


Getting money early from life insurance

If you already have a life insurance policy and you want to take money from it early, you might be able to cash it in or sell it on. But cashing in or selling a life insurance policy is a big decision. If you do this, the policy will not pay out to your beneficiaries when you die. You may want to think about how your beneficiaries would manage financially before you decide. Here are some of the more common ways you might be able to get money early from a life insurance policy:

Cashing in an investment policy

Some types of life insurance are investments and can be cashed in early. You will not get back all the money you have paid in as premiums. You just get the cash value of the part of the policy that has been invested. But that cash value may be low, especially if you have not had the policy for very long. There may also be a charge.

Terminal illness benefit

Some life insurance policies include an extra benefit called terminal illness benefit. This means that if you are expected to live for less than 12 months, the insurer will pay out the full amount of the insurance cover straight away. You keep the payout even if you live for longer. You can use the money for any purpose. Check with your insurer to see whether this benefit is included in your policy.

Selling a life insurance policy

An alternative to cashing in a life insurance policy is to sell it to someone else in return for cash immediately. This is done through a specialist company. The buyer takes over paying the premiums and they get the payout at the end of the policy. This option is only available for endowment policies (see above).

For more advice about these options, call our financial guides for free on 0808 808 00 00.

We can help with the claims process. We can also help you if you want to buy insurance but are finding it difficult because you have cancer.

Craig, Macmillan financial guide


Providing support for your family

You may need to think about how your family, or anyone who depends on you financially, would cope if your illness becomes worse or if you die.

If this happens, your family may be able to get government benefits. They could also get financial support from your employer, if you have one.

If you have life insurance, your family could get a payout from that. If you already have a policy, it is important to keep this cover. This will be easier than starting a new life insurance policy after your cancer diagnosis.

You may have life insurance through your employer, if you have one.

You might find it difficult to increase the amount of cover for some years. Some policies might offer a ‘special event option’, which means you can increase the amount of cover if a certain event happens in your life. For example, this could be the birth of a child, moving house or getting married. You will not have to answer more questions about your health.

If you do not already have a life insurance policy, it may be difficult for you to buy life insurance if you have, or have had, cancer.

If life insurance is not an option, think about building up extra savings and investments instead.

Our financial guides can talk to you about things you can do to provide support for your family if your illness gets worse. Call them on 0808 808 00 00.

Back to Insurance

Cancer and buying insurance

Insurance protects your finances against unexpected events. Cancer can sometimes affect buying insurance.

Health insurance

Cancer may affect your decisions about buying or claiming on health insurance.

Protection insurance

Protection insurance can pay out money if you become too ill to work or are diagnosed with a serious illness such as cancer.

Car insurance

Your car insurance should only be affected if the cancer makes it difficult or dangerous for you to drive.