One of the country’s most facilitated online insurance policy comparison firms has recently tackled the thorny subject of urban legends associated with the habitually confusing world (NOT a clue as to which aggregator we’re referring to, just to clarify) of life insurance products, protocol, procedure and practice. Along with some other associated bits and bobs pertaining to insurance sensibilities and otherwise. It’s addressed the near-mythical issues, hearsay and old wife’s tales which are never found far away from certain life insurance policies which are widely available; and have worked to separate the naked truth of matters from the pack of blatant lies which are normally trotted out.
A popular financial product information source flagged up the findings of late, kicking things off with that old chestnut about ‘credit cards debts disappearing when you die’; or rather, purportedly so. The insurance expert quickly poured cold water on that long-standing notion, insisting that, sadly, debts aren’t in the habit of miraculously disappearing in a puff of smoke if and when the owner of said debts meets their maker. They go on to explain that in this instance of death becoming you then any monies owed on credit cards are transferred to your estate to continue paying/settling. Any funds leftover after these debts have been satisfied will go to the survivors of the deceased party/acknowledged beneficiaries. In a nut shell this means that any creditors will legally get first dibs on any inheritance left behind. Should the dearly departed leave with no assets to their name – or alternatively with debts outweighing the total value of the estate left – then the credit card provider will be unable to pursue anyone else for individual credit cards. This spells bad news for beneficiaries though, as essentially they’ll receive no inheritance.
Another oft-heard proclamation is that which stresses ‘your life insurance premiums will increase if you develop a serious illness’. Mercifully for those affected by ill health this is another myth which needs to be ignored. Life insurance policy premiums are historically based on the policyholder’s health (together with other influencing factors) at the juncture in which the individual arranges the legally-binding agreement. So, in the event of a serious medical condition developing or being diagnoses at a later point in a policy life your premiums will remain unaffected by this health revision. On the proviso that you were honest and upfront on your original application of course.
Elsewhere, and a seemingly groundless accusation which is routinely voiced is that surrounding ‘life insurance not paying out for suicide’. Now, whilst this largely differs between life insurance providers, on the whole suicide does tend to be covered, just so long as the plan has been in force for a minimum period of 12 months prior to the policyholder meeting their own demise. That said, individual policies will often vary according to a range of other factors, yet by and large this statement belongs in the category marked ‘myth’. Meanwhile a number of people are of the understanding that they are contractually obliged to ‘inform their existing life insurance policy provider should they suddenly decide to start smoking or put on weight’; with the belief that this will adversely affect said policy already in place.
Well, this is broadly rubbish too, and traditionally you don’t have to inform your life insurer if you form a nicotine habit or overdo things over Christmas. And that’s because your premiums are once again (like above) derived from the condition at which you truthfully present yourself when you sign-up to a life insurance product, and the lifestyle you’re leading then and there. On the flip side of the life insurance coin, if you’ve recently made positive lifestyle changes which can only be seen to improve your health (think quitting smoking or losing a significant amount of weight by adopting a healthy eating/fitness regime) then some insurance providers will be accommodating about actually decreasing your annual premium based on these recent admissions. If they don’t, you can always jump ship and switch to another life insurer so that you can start anew with a blank, no-smoking canvas.
Finally, there’s that old adage which traditionally does the perpetual rounds which implies that ‘the tax man gets the lion’s share of any life insurance settlement’. Well, hold your horses yea-sayers, as this isn’t necessarily true. Although a life insurance pay-out is normally subject to inheritance tax, policyholders can lawfully side-step this by ensuring that they have the policies written ‘in trust’ ahead of them departing this world. In layman’s terms this amounts to paying the proceeds from your life insurance plan into an individual trust fund which is recognised as a separate entity when you pass on; which ostensibly means that survivors will legally avoid forking out for inheritance tax on monies you leave behind from a policy. Policies written in trust are relatively straight forward to arrange and complete the applicative paperwork for and can even quicken the pay-out process when the time comes. To those not in the loop, once a trust is agreed and ratified it’s then managed by a nominated trustee such as a family member or appointed solicitor. Reassuringly this won’t make any difference to how the money is ultimately distributed through your last will and testament. Note, a small administration fee is usually charged by insurers for writing a policy in trust, but other than that, the whole process is pleasingly simple. And remember, life insurance doesn’t cost an arm and a leg to instigate in the first place, with many policies starting from less than £5 a week; just in case you haven’t got round to organising one yet!