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Life insurance

Life insurance comes in various types. You need to check your existing policy if you are diagnosed with cancer. Or make sure that a new policy suits your needs.

Insurance is really a way of betting against a particular thing happening. Then if it does happen, you or your family get money to help cover the costs.

About life insurance

Many of us have life insurance because we need it to get a mortgage. The point of having the life insurance is that if we die, it pays out to cover the mortgage.

Life insurance mightn’t be of importance if you don’t have a financial responsibility, such as a mortgage, or anyone who is financially dependent on you.

The cost of insurance depends on several things. Two of the most important things are:

  • how likely it is that the event insured against will happen
  • whether the policyholder is above or below average in risk

So if you have a serious illness that can't be cured, you won't be able to get life insurance.

Insurance companies can't discriminate against one group of policyholders unfairly by charging too high a premium in order to subsidise the cost of insurance to another group.

Talk to your financial adviser about whether getting life insurance is the right thing for you.

It’s important to remember that insurance varies from person to person and from company to company. Make your own enquiries and check carefully what companies offer you. A good financial adviser will check all the rates for you and then recommend the best deals for your circumstances.

Insurance companies take certain factors into account if you’ve had cancer. These include the type of cancer you have and the stage it is at.

With your permission, the company will write to your doctor or hospital, asking for medical details that could affect your policy. They might also ask you to have a medical examination before they will issue your policy.

With most cancers, life insurance companies are unlikely to issue a policy for at least 2 to 3 years after you've recovered from that cancer. When a policy is issued, the first premiums will be high because that’s when the insurance company has the greatest risk. For most cancers, as time goes by the risk of the cancer coming back gets lower.

Talk about your individual case with your life insurance company. They can tell you more about how this will personally affect you.

There are special rules about insurance in the Disability Discrimination Act (DDA). This Act applies to you if you have cancer, or have had cancer in the past.

You might already have a life insurance policy from before you were diagnosed with cancer. The insurance company should honour it as normal, as long as you were honest about your medical history when you took the policy out.

You might find it difficult to increase the value of your policy for some years. But it’s important to keep it up. That will be easier than starting a new life insurance policy after your cancer diagnosis.

You may want to increase your cover. Ask your adviser about using a 'special event option'. This means you can increase the cover with no underwriting, subject to certain events happening in your life – such as the birth of a child, marriage or moving house.

Life assurance policies have extra sections that help people with cancer to pay their premiums.

Another feature pays out a lump sum, if the policyholder contracts one of the illnesses listed in the policy at the start. This could be useful for people who have a cancer that runs in their family. What is and isn’t included will depend on your requirements and underwriting.

Be aware of these general guidelines when buying insurance.

  • Before you contact an insurer, you might want to discuss your situation with your hospital consultant. This will give you some idea of the medical opinion the insurer will get.
  • Make informal enquiries with several companies first. Other companies are allowed to know if you make a formal application and are rejected. This could influence their decision. Once you see who gives you the best reply, you can make a formal enquiry.

You could ask a financial adviser or insurance broker to make the enquiries for you, if you don’t want to do it yourself. You might not have to pay for this. Most financial advisers make their money from commission paid to them by the insurance company.

The advantage of using a financial adviser is that they know the whole market, the available deals and where best to place their clients' business.

When you’re choosing an adviser to help you find an insurance policy, always check that they are reliable and trustworthy.

  • Ask people you trust if they can recommend a broker.
  • Always check a few brokers – don't settle for the first you find.
  • Ask for a proper consultation with their most experienced negotiator.
  • Make sure you feel comfortable with the broker and can trust them.
  • Disclose all relevant information to your broker, so the company can't cancel your policy on the grounds that they have not been properly informed.

A good way of comparing companies is to work out the total cost of premiums over the whole period and compare those figures. Then you can see if a company is setting impossibly high premiums because they don't want to insure you.

Life insurance can help your family if you die. It is a way of protecting. It can also be a way of saving.

There are three basic types of life policy.

Term insurance (TI)

This is the most straightforward and usually the cheapest form of life insurance. It covers you for a set amount of time.

With TI, you can arrange cover that can be as short as 1 month. So it will only pay out if you die within that specific period. You'll receive nothing if you live to the end of the term, and you won't get any of the money you've paid out back.

You may be able to extend the policy if your circumstances change and you need cover for longer. But your premium may go up.

Some policies can be converted into whole life policies or endowment policies, which you can read about below. If you can’t extend the term of your insurance, you can apply for another policy to cover the shortfall, or for a longer period.

Some companies offer term insurance policies with reviewable rates rather than guaranteed rates. This means that they could increase the cost of your premium payments in the future, following a review of your policy.

Although a guaranteed rate policy may cost more to start with, it may well be cheaper in the long term because the insurer cannot increase the cost of your premium payments once the policy has started.

This type of insurance could suit you if you’re on a limited income, as the period of cover can be as long as you wish. And once the policy is issued, the insurers cannot increase the cost of your premium payments, so it’s easier to budget.

Term insurance can also be useful for covering periods of high expenditure, such as a mortgage or when you have growing children. The Insurance Companies Act 1982 and a code of practice from the Association of British Insurers (ABI) protect you when you buy.

Whole of life insurance (WOL)

This type of insurance:

  • covers you for the whole of your life
  • is more extensive protection than term insurance
  • is insurance protection only, not a way of saving

WOL insurance can give you peace of mind, as your family will get a lump sum when you die as long as you keep up the payments. The cover will lapse or be reduced if you stop the payments.

When you buy WOL the regular premiums that you have to pay aren’t fixed. So the insurer will carry out reviews of your policy and can increase the premium from time to time.

They can do this often as every 5 years if you are over 60. If you are over 70 to 75, it could be every year. The increase in premiums can be quite a bit, particularly if you’re over 60.

There is a type of WOL called 'standard cover', where the premiums are higher to start with but may not be increased in the policy reviews.

Endowment insurance (EI)
  • Gives insurance protection and some investment value
  • Has higher premiums than WOL or TI

EI will help your family's finances if you die and it provides a method of long term saving at the same time.

This type of insurance can be taken with or without profits.

A "with profits" policy lets you share in the profits of the company – assuming there is one. The profits are normally added to the policy annually, as a bonus. Bonus rates may change each year.

The 'without profits' policy doesn't share in profits made by the insurance company. You get the basic sum insured only.

Some life policies have these optional extras.

  • Waiver of the premium. If you can’t do your normal work because of an injury or illness, the insurance company will pay your premiums for you for a set period, so that you can keep up the insurance while you’re off work.
  • Critical illness cover. This provides cover against the risk of you having a serious illness, such as a heart attack or cancer.

Critical illness insurance pays you a lump sum if you develop one of the illnesses listed in the policy. You can buy this type of insurance on its own or as an addition to whole life, endowment or term insurance. What is included will depend on what you agree with the insurer.

Think carefully about what cover you’re getting with critical illness insurance. Some policies are designed to pay out only for illnesses that aren’t at all common. So you need to know how likely it is that you’ll get one of those uncommon illnesses.

The policies are likely to only cover you until a certain age. Some policies that cover breast cancer, for example, may only cover you until you are 50 – the age at which breast cancer starts to become more common. So when you start to really need the cover, you don't qualify for it.

Also, make sure you understand the words they use in the policy to define the illnesses covered. If you don't understand, ask someone to explain – a doctor or nurse for example – before you sign up.

When you're choosing your life insurance, be very careful that the policy is right for you and your family. Review the insurance regularly to make sure it’s keeping up with your changing personal and economic circumstances.

Life insurance is a long term commitment. Never surrender a policy without taking expert advice.

You should really know about all the terms and conditions before you take your policy out.

But some policies have a cooling off period. In the two weeks after signing the agreement, you can tell the insurer that you do not want the policy. The company will then send you a statutory notice of your right to withdraw from the policy. You’ll get back all the money you have spent on the premiums.

Complain to the broker, financial adviser or salesperson who arranged your policy if you’re not happy with the service you’ve been given. Your policy document will have details of the complaint procedure.

If you can’t get your complaint sorted out at this level, you can contact the Financial Ombudsman Service. Or you can contact the Financial Conduct Authority (FCA), previously known as the Financial Services Authority (FSA). These services are free to the public.

For advice or to make a complaint