Brits baffled over death and debt
Here, life insurance experts from Gocompare.com expose common life insurance misconceptions and give the facts behind the myths.
Jeremy Cryer of Gocompare.com said: "Our research has found that many UK consumers are pretty baffled about what affects their life insurance and what happens to their debts when they die. Myths such as 'my debts die with me' could leave families exposed if tragedy strikes and they haven't got sufficient life cover in place. Consumers could also be missing out on opportunities to lower their life insurance costs if they give up smoking or a dangerous sport.
"No one likes to think about what will happen when they die, particularly if it's before reaching a ripe old age, but you owe it to those you'd leave behind to ensure they aren't left in a financial mess when they are trying to pick up the pieces after your death."
1. 18% of Brits believe that if they die their credit card debts die with them.
Myth - If you die owing money on your credit cards, your estate will have to repay your credit card debts before any assets can be passed on to your beneficiaries. However, if you have no assets, your credit card provider cannot pursue anyone else for your individual credit card debts.
2. 16% of Brits believe that if they die the money goes to their family and they decide which debts to repay
Myth - If you die and you have left a will, the beneficiaries will receive the remainder of your estate minus any debts, which must first be repaid together with any inheritance tax liability if applicable. If you have not left a will your estate will be distributed using the rules of intestacy (see below).
3. 44% of Brits believe that life insurance does not pay out for suicide.
Myth – Whether a policy pays out in the case of suicide differs between insurers. However, generally speaking suicide is covered after the policy has been in force for at least one year, but individual policies may vary.
4. 44% of Brits believe that they should tell their life insurer if they start smoking - or take up a dangerous sport. Almost a quarter think they should tell their life insurer if they put on a lot of weight or change their occupation, and nearly half believe that they should tell their life insurer if they get a serious illness.
All Myths - When you take out life insurance the insurance company assesses your risk based on your health, lifestyle, occupation and whether you participate in any dangerous sports or pastimes at that time. The premium quoted by the insurer will reflect your circumstances at the time you apply for cover. As long as you answer all of the questions accurately and honestly during your application you do not need to inform the insurer of any unforeseen changes that may happen in the future. Changes to your lifestyle will not affect your premium or your chances of your beneficiaries making a successful claim.
Some insurers are prepared to review and possibly lower your premium should you stop smoking. If they will not, and you have given up smoking for 12 months or more, you could consider shopping around for a new policy so that your premium can be calculated as a non-smoker. Always make sure you have appropriate cover in place before cancelling your old policy.
It's unlikely that your insurer will reduce your premium but if you've lost lots of weight it may be a good time to review your cover. Your insurance company will have calculated your premium based on your circumstances at the time of your application so if you were dangerously overweight your premium may have been higher than normal to reflect the potential hazard to your health. If you lose a lot of weight and become healthier you may find that insurers are willing to offer you more favourable terms on a new policy, even if you are a little older, so shop around to make sure you get the best deal for the new, fitter you.
If you give up a dangerous sport: In most cases an insurer would need a new application to take account of your changed circumstances and is unlikely to reduce your premiums just because you tell them you've given up rock climbing. If you have given up a hazardous sport it's worth shopping around a selection of life insurers to make sure you're getting the best deal for your new circumstances. But remember to ensure you have appropriate new cover in place before cancelling your old policy.
5. Less than 30% of Brits understand what 'probate' and 'intestate' mean.
Probate – The legal process of passing on the estate of a deceased person. Contrary to popular belief, you do not avoid the probate process by leaving a will. In fact, the only way you can go to probate is by having a will. Obtaining a 'Grant of Probate' allows your Executor to distribute the estate according to the instructions laid out in your will, minus any inheritance tax liability if applicable.
Intestate – If someone dies without leaving a will they are said to have died 'intestate'. Broadly speaking, dying intestate means that all of your worldly possessions will pass to your next of kin, minus any inheritance tax liability if applicable. If you're married, your next of kin is usually your spouse but if you are divorced or widowed it could be your children or other relatives if you don't have any children.