Insurance World

Amanda was 42 when she was given the difficult news that she had ovarian cancer.

The West Yorkshire woman received chemotherapy treatment after diagnosis, but Amanda became one of the unlucky ones. She had a bad reaction to the chemotherapy and because of this she was unable to work.

So when a tax bill arrived in the post for a large sum of money, re-mortgaging her house felt like the right thing to do. The building society with whom she had the mortgage asked her to bring along her life insurance papers to support the mortgage application.

But to Amanda’s surprise, what she thought was a life insurance policy was in fact critical illness insurance instead. She had been paying out Ј80 per month for two separate insurance policies with Scottish Provident and Norwich Union and had absolutely no idea that those two policies covered her for critical illness.

As a result, Amanda claimed back a staggering Ј100,000, which paid not only the tax bill but her mortgage as well.

Many of us haven’t got a clue about the exact sum we’re paying on insurance each year or the details of what we are in fact covered for. Not only are we shocked to find out that we are actually covered for more than we in fact realise, but that we’re doubling up by paying for various types of insurance that actually cover the same thing.

You’ll find that it’s areas such as loss of income, legal expenses, theft and death which most often people wind up paying out twice for when there is no need - mainly because they haven’t carefully read the insurance policy or because it has been the case that some insurance has been put on to some policies as an added bonus.

In a recently released Financial Services Authority survey, it shows that car insurance policies also come with added extras like breakdown recovery and legal expense cover. Paying out for these added extras when you do not want them is an easy mistake to make, according to the survey, because you actually have to physically ring the insurance firm and tell the staff that you do not want them before these ‘options’ are removed from your agreement.

Take permanent medical insurance (PMI) for example. Many aspects of this policy cover you for the same things that Payment Protection Insurance covers you for. But few people realise this and so they take out both.

The FInancial Ombudsman is very aware about the situation surrounding insurance duplication. They say that “people often do not realise until they make a claim that they have been paying for a policy that provides very little, if any, benefit”.

Take a look at your Critical Illness Insurance, as this is one area in which you sometimes get cover from your employer. Find out whether you have this type of insurance with your work before you make the purchase on this policy. Do the same with life insurance, because if you have a company pension scheme, life insurance is something you do not actually need. The reason? Because most company pension schemes have a death-in-service benefit. What this means that should you die while you are still an employee at that particular firm, then large, a tax free payment will be made - a payment which could add up to four times your annual salary at the time of your death, or more.

Other types of insurance you might not need includes mobile phone insurance. The consumer watchdogs will tell you this is something that’s often a waste of money because you have to pay the first Ј50 of the claim and if you already have home insurance, that insurance might provide you with some protection.

Others include car insurance extras such as legal expense cover. If you are a member of a trade union, then you could have some legal cover anyway.

Some companies trying to get people to take out ID theft insurance. A waste of money? The consumer watchdogs think so because if it is the case your ID gets stolen you are only responsible for the first Ј50 and most of the time the banks are prepared to waive charges.

Term life insurance is a life insurance product that pays out a cash lump sum upon death of the insurance policyholder or at the point that the insurance policyholder is diagnosed as terminally ill. But, despite it being a low cost term life product - insurance cover can be acquired from as little as Ј5-Ј10 per month - surprisingly few of us have term life insurance in place.

For people with a mortgage and family to support, not having a term life insurance policy exposes them to a large financial risk. This risk becomes apparent when you consider how the mortgage and household bills would be paid if the main income producer were to die or to become terminally ill. The end result could be that loved ones who are left behind find their home is repossessed because they cannot keep up the mortgage repayments.

Some people prepare for such an eventuality by taking out a mortgage life insurance policy. This is all well and good for covering off the remainder of the mortgage loan, but where will the money come from to pay the gas & electricity bill and the council tax bill every month, let alone the money needed to cover the policyholder’s funeral expenses? It is at this point that a term life insurance policy becomes very useful indeed.

If you don’t have a term life insurance policy in place, here are some sobering reasons why you should consider taking out a term life policy now…

• CANCER - One in three people will develop cancer at some point in their lives. Research into cancer is of course ongoing, and one day some cancers may be curable. In the meantime a term life policy offers income protection for loved ones left behind in the event of terminal cancer diagnosis and death from cancer.

• HEART DISEASE - Heart and circulatory disease accounts for more than 35% of all deaths in the UK each year. The number of people dying from heart and circulatory disease is on a falling trend, but the number of people becoming morbidly obese is increasing, and so may reverse this trend in the near future. Term life policies can be configured to pay out if cause of death is heart-related.

• MRSA (SUPERBUG) - The death rate from the MRSA superbug has doubled in the last 4 years. MRSA is a bacterial infection that is resistant to antibiotics. It commonly causes death in people with weak immune systems, and so easily spreads amongst the sick & old in hospital wards. Many life insurance policies pay out if the cause of death is MRSA related.

• AVIAN FLU (BIRD FLU) - Recent comments by the Society of General Microbiology in the UK sparked controversy when they estimated that 2 million people in the UK could die from a highly infectious strain of mutated Avian Flu. If you are worried about Avian Flu check with the life insurance agent to see if their term life policy covers such an eventuality.