Life insurance: get covered now before it's too late
Death and disease don't feature heavily in the lives of most people under the age of 40. But, with youth on your side, it's the ideal time to take out protection products such as life insurance and critical illness cover. they'll never be cheaper.
"Young people often dismiss protection as something for older people," says Tom Baigrie, chief executive of independent financial adviser Lifesearch. "But as well as covering heart attacks, strokes and cancer, these products also pay out for things that do affect the young such as multiple sclerosis, accidents and stress."
And, while the probability of contracting a serious illness does increase as you get older, the statistics show there's still a risk, whatever your age. Figures from Cancer Research show an average of 32,367 cancer cases are diagnosed each year among people aged between 25 and 49.
On top of this, with 11% of employees having to take at least six months off work due to illness or injury, according to ICM research for insurer Unum, there's a one in nine chance it could happen to you.
For Puravi Joshi, a 25-year-old investment banker living in London, the statistics were too worrying. "Most people think they're invincible at my age but i wasn't so sure, so when i started work at 21 I took out life insurance, critical illness and income protection," she says. "My job enables me to have a wonderful lifestyle and i want to protect it."
To ensure these statistics don't derail your plans, there are three main types of protection you can take out. Life insurance provides a payout if you die; critical illness cover pays a lump sum if you are diagnosed with a life-changing condition such as multiple sclerosis or cancer, provides a replacement tax-free income if you are unable to work due to long-term illness or injury, with bad backs and mental health problems among the most popular claims.
While taking out as much cover as you'll ever need is ideal, budgets and lifestyle mean this isn't always possible. Bonnie Burns, product and technical director at Legal & General, says it's best to concentrate on the products that are most relevant.
"Think about what would happen if you weren't around or you were unable to work due to illness," she says. "If you've got financial dependants, then life insurance will ensure they're looked after if you die but also consider it if you have a debt, as this would need to be repaid."
These triggers spurred on 34-year-old web developer Richard Saunders from south Wales to take out cover for himself and his wife, Clare. "We've got two children under three, so we took out life insurance and critical illness cover with Aviva to ensure that if anything happened to us they'd be looked after financially," he says. "We pay £86 a month, but it's worth it for the peace of mind it gives us."
Without financial dependants, income protection and critical illness cover are arguably more important. Both provide invaluable financial support (in the form of a lump sum or income) if you suffer an illness or injury. Burns adds: "if you were unable to work due to illness, what would you do? Would you want to move back in with your parents?"
Benefits of youth
But while budgetary constraints may mean you stick to the products that are most relevant, with youth on your side, there's an argument that it's worth taking out at least some of all three covers. "It's never going to get cheaper," says Phil Jeynes, head of account development at PruProtect. "Cutting back on a coffee or a pint a week would cover the cost of a decent amount of protection while you're still young."
As an example, according to figures from IFA Lifesearch, while a 25-year-old non-smoker will pay as little as £5.42 a month for £100,000 of life insurance over 25 years; by age 35 the price will have nudged up to £8.12 a month; and by 45 it would cost at least £16.68 a month.
The cost of delay is even greater for critical illness cover. While a 25-year-old will pay £18.99 a month for £100,000 of critical illness cover (including life insurance over 25 years), at age 45 the premium would have soared to £81.50 a month.
A matter of health
The other key advantage of being young when you take out cover is you probably won't have had an opportunity to pick up health conditions such as high blood pressure and diabetes that make insurers twitchy.
Although family history will play a part in determining your premium, with a clean bill of health, insurers are unlikely to add a loading to the cost of cover, exclude conditions or decline you altogether.
Smoking is one area where younger people may find themselves forking out between 50% and 100% more for protection. Figures from Cancer Research UK show the highest rate of smoking is among adults aged between 20 and 34. Alan Lakey, senior partner at IFA Highclere Financial Services, says: "If you give up, as soon as you've been nicotine-free for a year you will qualify for non-smoker rates."
On top of this, as medical science continues to take massive leaps forward, if you take out a critical illness policy now you may find it will pay out for conditions that can be treated easily in the future. For example, coronary work angioplasty, an operation to widen blocked or narrowed arteries, used to be a risky procedure covered by critical illness cover.
Today, modern policies don't cover it because it's a minimally invasive form of treatment requiring, at most, one night in hospital but anyone with an old policy could still get a payout.
Guaranteed increases If you take out protection while you're young, it's also easy to increase cover as and when you need it. "Most policies include a guaranteed insurability option," explains Chris McNab, protection product manager at insurer LV=. "This enables you to top up cover if you experience one of life's big events such as getting married or having a child."
The terms of the option vary between insurers but, as an example, with LV=, you can increase the cover by 50% subject to an overall maximum increase of £150,000. Further, while the premium for the additional cover will be based on your age when you take it out, any new medical problems, risky pastimes or occupational hazards won't be taken into account.
Taking out cover
Arranging cover is really simple, too. While you can buy life cover through a comparison site such as confused.com or moneysupermarket.com, arranging it through an IFA will ensure it suits your needs. Details of advisers in your area can be found through unbiased.co.uk.
The process is set to get easier too, as the government is ensuring a new range of simple products, which meet rules on factors such as terms and conditions, pricing and product features, is made available in the next couple of years.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.