With term life insurance, if you die before the end of your policy, your beneficiaries will receive a lump sum payment. However, if you outlive the policy term, the policy expires, meaning you will no longer be covered in the event of death. Furthermore, you won't be entitled to any compensation for the premiums paid during the cover term.
Once your policy expires, the only logical alternative for cover is to take out a new policy. At this point, you'd need to consider whether it is worth getting additional cover, as your circumstances may have changed. For example, if you're still paying off your mortgage, you may want to buy cover to ensure it is still protected.
If you're looking for permanent cover, you may be better suited to a whole life insurance policy. This type of cover pays out a cash lump sum regardless of when you die.
For further information, please read: What Happens If You Outlive Your Life Insurance? - this will help to answer any questions you may have about what to do when you reach the end of the policy term.
While the main purpose of life insurance is to provide protection for the future, it can have some uses during the present too. Perhaps you've reached the stage where you feel you no longer need life insurance, or you can no longer afford your monthly premium? You're usually left with two options, cancel your policy, or cash in the policy.
If you decide to cancel your policy, you are only entitled to a refund during the first 30 days of cover - known as the cooling off period. However, once this period has passed, you'll no longer be entitled to a refund.
Some policies, like whole life insurance, allow you to cash in your policy (also known as surrendering the policy). In this case, a surrender fee would be charged against the cash value of your policy. This results in you receiving significantly less than what the policy would originally pay out.
Please note that whilst there are life insurance policies available with an investment element and/or cash surrender value, Cavendish Online is not authorised to sell this type of policy.
If you have a life assurance policy, you may be concerned about whether the money your family receives is subject to tax. The reality is that your life insurance policy is deemed as part of your estate when you die. The payout will only be taxed if the value of your estate exceeds the government threshold for inheritance tax (£325,000 as of 2022).
Please note: The rules of inheritance tax thresholds can be a little complicated, as it may differ if you are part of a couple or own a ‘family home.’ We’d suggest talking to a financial advisor or solicitor to learn more as Cavendish Online is not authorised to discuss inheritance tax.
Whilst by default, your life insurance policy will become a part of your estate if there is a payout, there is a way to bypass this and get the money to your loved ones sooner. This is called writing your policy in trust.
Writing your policy in trust is a simple process that should keep the money away from your estate, therefore making it tax exempt.
Life insurance is often referred to as term life insurance. This type of cover protects you for a set period of time, as agreed with your insurer. The policy pays out a lump sum, so long as you pass away within this time. If you survive the term, the policy expires, and you will no longer be covered or receive any kind of pay out.
Life assurance is known more commonly as whole life insurance. This type of policy covers you for your entire life, paying out a lump sum when you die. As the policy lasts until your death, your family is assured of a pay out, so long as you keep up with your monthly premiums.
Another difference between the two policies is cost. Because whole life cover is guaranteed , premiums are often more expensive. Term life, on the other hand, is much cheaper because cover is temporary.
Life insurance typically pays out a cash lump sum after the policyholder's death. The money is then paid to their chosen beneficiaries, in most cases their family.
The process begins with your family notifying your chosen insurance provider about your death. The insurance provider then reviews the claim and determines whether it is valid. Once approved, the insurer sends a check to the chosen beneficiaries.
The amount your family receives depends on how much you are insured for - this will be agreed at the beginning of the policy. Typical life insurance policies pay out in one lump sum, but there are some options that could pay out monthly or annually for a set amount of years instead.
On average, a policy takes between two weeks to two months to pay out, but certain factors could cause delay.
Though the claim process should run smoothly, there are some instances where the pay out can be delayed. For example, there may be an investigation into the cause of death to ensure that it is covered by the policy.
If this is the case, then the insurer will need to gather more evidence before they can make a decision. This could mean that the claim has to go through a number of stages before it is finally approved.