Under normal circumstances you Life Cover will not pay out anything to you if you are ill. The policy is only designed to cover you for death and as a result will only pay in this circumstance.
Critical illnesses are more common than people tend to believe and can affect anyone at any time. A number of critical illnesses are being diagnosed at a younger age.
Policies can include something called 'Terminal Illness Cover'
which will allow, at the insurance companies discretion, a payout
of your policy early if you are diagnosed with a terminal illness
where you will die within 12 months.
This is offered as a goodwill gesture by the insurance companies to
allow you the opportunity to settle your affairs and make your own
arrangements before you die.
It is important to understand that this is not the same as Critical
Illness Cover and will only be offered for conditions where your
doctor has told you that you will die within 12 months.
Taking Life and Critical Illness Cover together can provide a great method of ensuring you are fully protected against the eventualities of death and contracting a critical illness such as a heart attack or stroke. It can also serve to reduce Critical Illness premiums compared to taking a Life Assurance and Critical Illness Cover separately.
Your policy can include an option called index linking which
allows it to increase on an annual basis to offset the effects of
the years inflation and increases in the retail price index.
This is important because as time goes by the real time value of
your payout will decrease. That is to say that what you can buy for
£100,000 today will not be the same in ten years time. Index
linking your Life Assurance policy will allow it to maintain that
value.
At the time of your death your family will obviously be upset
and whilst thinking about your insurance payout will probably not
be the first thing they want to think about, it may be necessary to
cover your funeral expenses or pay off your mortgage. As such it is
important that the process for ensuring your family is paid quickly
is in place.
Normally your life insurance payout would be paid into your estate
and left to the process of probate to decide how it should be
divided up and used. Unfortunately probate can be a lengthy process
(at times up to 6 months) especially if your will is
contested.
One way to avoid the probate procedure for your life assurance is
by having your policy written into trust. Writing your policy into
a trust allows you to nominate to whom the payout should be made,
meaning that it is paid by the insurance company much faster to
exactly who you intended it to go to.
As an added benefit, writing your Life Cover policy into trust can
also help to limit the effects of inheritance tax on your estate
because the payout would no longer form part of the estate.
Having your policy written into trust can normally be done at no
extra charge as long as you include it on the application of the
policy itself.