You may have taken out a life insurance policy to provide your family with financial security if the worst should happen. If you have, it’s important that they know how to make a claim. A survey suggests many families aren’t aware of life insurance policies and it could mean the money goes unpaid at a time when they need it.
A life insurance policy pays out a lump sum to beneficiaries if you pass away during the term. The lump sum can help loved ones cover essential costs at a time when they’re grieving and give them the freedom to take time off work if they want to. It can also mean they’re able to pay off significant financial commitments, such as a mortgage. Taking out a life insurance policy can provide a financial safety net when they need it most.
If your family could struggle financially if you passed away or you want to ensure they would be secure in the long term, it’s worth considering life insurance.
2.9 million life insurance policies could go to waste
Just as important as taking out appropriate financial protection is ensuring your loved ones know how to make a claim.
Research from GoCompare found that:
- 18% of life insurance holders haven’t told their family members that they have a policy
- 35% said their family doesn’t know how to access their policy documents
- 71% stated that the policy isn’t detailed in their will.
If you take out a life insurance policy but haven’t spoken to your family about where they can find the information, it could mean delays or even that it goes unclaimed. The research estimated that more than 2.9 million life insurance policies in the UK are in danger of going unclaimed if the policyholder passed away. These policies are worth an estimated £230.2 billion.
Could your life insurance policy be overlooked by your loved ones?
If your loved ones need to make a claim, they will need to contact the insurer directly. They will also usually need to provide a death certificate and the policy number. So, it’s important that they have the information they need to start a claim. Here are three steps you can take to reduce the risk of your policy being missed by those it was taken out to protect.
1. Speak to your family about the policy
While this can be a difficult conversation to have, it’s an important one. Letting your family know you’ve taken out a life insurance policy means they’ll know they can make a claim and it could ease financial worries they may have. It’s also an opportunity to discuss the level of cover you’ve taken out. Would it provide enough to create a safety net?
While this is a step most policyholders are taking, almost 1 in 5 are not. Understandably, you may not want loved ones to know in some circumstances, but it increases the risk of a policy being overlooked.
2. Keep the policy documents in an easy-to-find place
A beneficiary may still be able to make a claim without the documents. However, this can cause delays and stress. At a time when they’re dealing with loss and may be facing financial challenges, making the process as smooth as possible is important.
You should keep your policy documents with your other important paperwork. Make sure it is easy to find or you have told your family where you keep it.
3. Use your will to make a note of the policy and pass on instructions
You can use your will to ensure the executor of your estate knows about the policy. You may also want to leave instructions for how the policy is used. For example, you’ve planned for it to be used to cover funeral expenses, a child’s education, or to pay an Inheritance Tax bill. Keep in mind these instructions would not be legally binding, but they can offer loved ones some direction and mean they understand your wishes.
Does your policy provide the level of security you want?
When taking out a life insurance policy, you should think about what you’d want it to achieve. This can help you choose a policy that delivers the right level of cover for you. There may also be alternatives that are better suited to you.
For example, would you want it to pay off outstanding mortgage debt, or provide a long-term income for your family? If it’s the latter, a family income benefit policy, which would give regular financial support rather than a lump sum, may be more suitable.
If you’d like to talk about the steps you can take to improve your family’s financial security, please contact us.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only. The Financial Conduct Authority does not regulate estate planning.