Types of life insurance Buying life insurance How cancer can affect buying life insurance Getting money early from life insurance

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1 This information is an extract from the booklet Insurance, which is part of the financial guidance series. You may find the full booklet helpful. We can send you a free copy see page 6. Contents Types of life insurance Buying life insurance How cancer can affect buying life insurance Getting money early from life insurance Types of life insurance There are four main types of life insurance: Level term insurance pays out a lump sum if you die within a set time period. This lump sum amount was agreed when you were setting up the policy, and it does not change. Decreasing term insurance is often taken out with repayment mortgages. The amount you are covered for decreases in line with the amount of mortgage you owe. Endowment insurance pays out a lump sum if you die within a set time period. If you do not die within the term, it pays out at the end of the term. So this type of life insurance builds up an investment value. You will have taken out this type of insurance in the past if you ve had an endowment mortgage (where you only pay the interest to the mortgage lender and the rest is invested in a life insurance policy). Some endowment policies will pay if you are diagnosed with a critical illness. Whole life insurance builds up in value and pays out on death. It can be used as an investment, for protection, or both. Questions about cancer? Ask Macmillan Page 1 of 6

2 I sadly didn t have life or critical illness insurance, which I now regret as I was entitled to nothing. If I had had it, my mortgage would have been paid during treatment. Laura Death-in-service benefit Many employers also offer life cover to employees. Cover is usually available to every employee up to a set limit, whatever their state of health. Speak to your HR department at work to find out more. Many employers offer a type of life insurance called death-in-service benefit. Death in service benefit guarantees a lump-sum payout if you die while working for that employer. You can usually choose who you would want this payment to go to (your beneficiaries). However, sometimes death-in-service payouts go into a discretionary trust, which means you cannot choose exactly who will benefit. If you consider giving up your work due to ill health, check with your employer what would happen to any life insurance cover they provide. Over-50s plans Over-50s plans are designed to pay a lump sum of money into your estate when you die. They re mainly intended for anyone aged who doesn t already have a life insurance policy. People with life insurance can still buy over-50s plans and may choose to if they are saving for a particular purpose (such as paying for a funeral) and want to keep this separate from their life insurance. Over-50s plans don t require medical underwriting. This means your health won t be taken into account when you are applying for the policy. The payout also isn t affected if you are in poor health when you take out the policy. For these reasons, over-50s plans can be suitable for people with existing health problems. The monthly payments are usually an affordable amount, but the final payout is generally modest. If you live for many years after you take out the plan, you may end up paying in much more money than is paid out when you die. Page 2 of 6 Questions about cancer? Ask Macmillan

3 If you die within two years of starting an over-50s plan, there may not necessarily be a full pay-out. But there may be a refund of the money that had been paid into the plan. Some people prefer to pay for their own funeral using a pre-paid funeral plan. These may be better value for money, but you need to make sure you ask: Does the plan cover all the costs of the funeral? What happens if the funeral home goes out of business? What happens if you die while overseas? JARGON BUSTER Underwriting The process where insurance companies look at your details to decide whether or not to insure you, and what the terms of that insurance should be. Buying life insurance The two main reasons people may buy life insurance are to: Pay off large debts, such as a mortgage to protect your house for your spouse or family. Provide an income to your spouse or family after you die. You will normally pay monthly payments called premiums. The premiums are set at the time you start the policy and take into account your state of health at that time. If there is a change in health after the policy has started, it doesn t affect the premiums for an existing policy. However, it will affect the premiums for any new policy. If you re paying regular premiums for the policy (each month, for example), the insurance continues for as long as you keep paying the premiums. Questions about cancer? Ask Macmillan Page 3 of 6

4 If you stop paying, the cover stops unless you have a waiver of premium benefit (see our Insurance booklet). Mortgage providers often try to sell life cover when mortgages are taken out. You don t need to buy life insurance from them, so you can shop around to find the best insurance for you. It s always a good idea to contact your mortgage provider to check whether you have any life insurance included in your mortgage repayments. Many employers offer life cover to employees on a group basis. Usually, cover is available to every employee up to a set limit, regardless of their state of health. Contact your personnel or human resources (HR) department at work to find out whether your employer offers a group life insurance scheme that you can join. Putting a policy in trust When you die, there may be inheritance tax to pay on your estate. Your estate is everything you own at the time of death, minus anything you owe. Normally, everything you own would include any payout from a life insurance policy, but you can arrange to have most life policies written in trust. This means that instead of the payout forming part of your estate, it goes directly to whoever you nominate for example, your partner or children. As well as possibly reducing tax, writing a policy in trust ensures your survivors get the payout quickly instead of having to wait until your estate is sorted out, which could take months or even years. Ask the insurer about putting a life policy in trust. Usually, there is no extra charge for doing this. How cancer can affect buying life insurance If you ve had cancer or you re living with cancer, you will usually be offered an above-average premium or be refused cover altogether. Cover with an exclusion for cancer-related claims would be very unusual. Page 4 of 6 Questions about cancer? Ask Macmillan

5 Whether or not you can get life cover, and on what terms, will depend on the type of cancer you have and the stage it is at. The insurer will want a medical report and may ask you to have a medical examination. Some brokers specialise in arranging life cover if you have existing health problems. However, it s difficult to predict whether a company will provide cover, because the decision will depend on your personal situation. Getting money early from life insurance Cashing in an investment policy Some types of life insurance are investments and can be cashed in early. But the cash-in value may be low, especially in the early years of a policy. Selling a life insurance policy An alternative to cashing in a life insurance policy is to sell it through a specialist firm to someone else in return for cash immediately. The buyer takes over paying the premiums and receives the eventual payout from the policy. For tips about these options, contact our financial guides on We can help with the claims process. We can also help to identify policies you may have through work, for example, or help you if you want to buy insurance but are finding it difficult because you have cancer. Craig, Macmillan financial guide Cashing in a protection policy Some life insurance policies include an extra benefit called terminal illness benefit. This means the insurer will pay out the full amount of the insurance cover immediately if you re expected to live for less than 12 months. You keep the payout even if you live for longer. The money can be used for any purpose. You can check the life insurance policy to see whether terminal illness benefit is included. Questions about cancer? Ask Macmillan Page 5 of 6

6 If you cash in or sell your life insurance policy, it won t pay out to your beneficiaries when you die. You may want to think about how they would manage financially before making a decision. NEXT STEPS For guidance about finding suitable life insurance, contact our financial guides on Contact your HR department to check whether you are included in a life insurance policy or if you can join one. Contact your mortgage provider to check whether you are covered by life insurance. More information and support More than one in three of us will get cancer. For most of us it will be the toughest fight we ever face. And the feelings of isolation and loneliness that so many people experience make it even harder. But you don t have to go through it alone. The Macmillan team is with you every step of the way. To order a copy of Insurance or any other financial guidance information, visit be.macmillan.org.uk or call We make every effort to ensure that the information we provide is accurate and up to date but it should not be relied upon as a substitute for specialist professional advice tailored to your situation. So far as is permitted by law, Macmillan does not accept liability in relation to the use of any information contained in this publication, or thirdparty information or websites included or referred to in it. Macmillan Cancer Support Registered charity in England and Wales (261017), Scotland (SC039907) and the Isle of Man (604). Registered office 89 Albert Embankment, London, SE1 7UQ REVISED IN APRIL 2015 Planned review in 2016 Page 6 of 6 Questions about cancer? Ask Macmillan