How Much Will my Policy Pay Out?
The amount that your life insurance policy will pay out depends on a number of issues. To a great extent you control the level of any future claim in the amount of cover that you take out. Part of your decision making process will involve deciding what your reasons for taking out life insurance are.
Reasons For Buying Life Cover
In the event that you die unexpectedly, your family are left dealing not only with the grief of your loss, but can also find themselves in a dire financial situation if you were the main breadwinner in the household. The cost of the funeral alone can be problematic, so at the very least your insurance should aim to cover the expenses associated with your death. Additionally, you may have loans or credit card payments that you don't want to leave to your partner as an additional burden. This will increase the cover that you want to take, and therefore the amount that your policy would pay out in the event of your death. If you have a mortgage that is covered entirely or in part by your salary, then you will probably want to cover these payments with your life cover, otherwise your dependents may end up not being able to keep up with the mortgage and having their home repossessed.
For many people the mortgage is the single compelling reason why they decide to take life insurance. It is such a large amount of money, that leaving your partner to cope with this without your earnings after you die, can put them in a very tight financial corner. However, if you were to die towards the end of your mortgage term then the amount outstanding, and therefore the financial burden, would be considerably less than if you were to pass away soon after buying your home. This is why insurers have developed what is called decreasing term cover. With this type of insurance, the amount paid out in the event of a claim will reduce along with the level of your outstanding mortgage balance. The cash lump sum paid to your family will in this case be larger the more of your mortgage there is left to pay off.
Do Insurers Always Pay?
If you have taken Â£100,000 worth of cover, you want to be sure that this is the amount that will be paid out to your loved ones in the event of your demise. However there are situations in which the insurance company will consider that the life insurance policy has been invalidated and will therefore pay nothing. Usually this will be because of fraud or misrepresentation, so it is important to be honest when applying for your life insurance. If you don't tell them about a pre-existing medical condition or that your family have a history of heart disease, the insurer may well find this out after your death and decide they have sufficient grounds to refuse paying. Misrepresentation can relate to your not having told them your true occupation, that you are a smoker, or that you enjoy dangerous sports. The effect of a life insurance pay out being refused can be so catastrophic that it is really not worth the apparent saving of failing to mention material matters when applying for your life cover. Where the policy holder has committed suicide, there may also be difficulty in persuading the insurer to pay out. If the person has previously shown suicidal tendencies or suffered from clinical depression, for example, this will be counted as misrepresentation where it wasn't disclosed.
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