How do I protect my families money?

Here are 10 things you can do to protect your families wealth from the simple creating a will to the less obvious like discounted gift schemes.

1.Make a will
Without a will, the State decides who receives money and assets in your estate. When this happens in England and Wales, your spouse takes the first £125,000 as well as your personal possessions and an interest for life in half the balance. The rest goes in equal shares to your children.

By making a will you could, for example, transfer some of your assets to children, grandchildren or others after your death within the £300,000 nil-rate band which would mean these bequests were IHT-free. All transfers between spouses are IHT-free but simply passing all assets to the surviving spouse means the IHT allowance of the first spouse to die is wasted and an extra £120,000 extra tax may be paid when the second spouse dies.

You could also use your will to set up a family trust but recent legal changes may mean your will needs updating. It is important to revise your will whenever your circumstances change - for example, when there is an addition to the family.


2.Change ownership of your home
Couples usually own their home jointly, meaning you both own the entire property. You should change ownership to become tenants in common so that you each own half of it.

David Rothenberg of accountants Blick Rothenberg explained: 'If you own it jointly, the house automatically belongs to the other person when you die. "By severing the joint tenancy you can give your share away to someone else when you die."

It is simple and cheap to do. A lawyer should charge around £100 to do it. But it is very important to consider the risk such a bequest might present to the security of tenure of the surviving spouse.


3.Equalise other assets
Equalise your estates. By having most of your cash, savings and assets held jointly or in one name only, the other person will not be able to use up their IHT allowance in their will.

Accountant Charlotte Black of Brewin Dolphin said: "If everything is held jointly it causes a problem as there is nothing to pass on when the first person dies."

Where husbands and wives or other members of civil partnerships trust each other sufficiently to equalise assets, they may even achieve immediate tax savings through making more use of the personal allowance for income tax - currently £5,225 per person aged under 65 - and capital gains tax - £9,200 per person during the tax year which ends on April 5, 2008.


4.Give with warm hands
You can give money and assets away before you die but there are strict limits under the IHT regime. Each person can give away £250 a year to any number of people as well as £3,000 in total annually to different people.

If the £3,000 allowance wasn't used last year you can give away another £3,000 this year. So, for example, couples who have made no use of this gift allowance can give away £12,000 in total this year.

There are no limits on the amount you can give away regularly out of your income, but it must not reduce your lifestyle.

Mr Rothenberg explained: "The Revenue is getting quite tough on this - so it's important to keep records of your expenditure as your income has to remain sufficient to cover your expenses. And record what you've given away."


5.Put your life cover in trust
When you die your life insurance will automatically pay out to the beneficiaries without having to go through the IHT regime if it is held in trust. The death benefit passes directly to them without being counted towards your estate. The life company - or, for example, the insurer which issued a with-profits endowment - will give you a form to complete to do this and it is usually free.


6.Check your pension arrangements
Employers' pensions are normally written in trust meaning any death-in-service lump-sum payment passes directly to whoever you nominate. Pension benefits for a widow or widower do not affect IHT though they will be subject to income tax.

Personal pensions should be written in trust, too, so that the pension pot can pass tax-free to whoever you wish. This must be done before you have to buy an annuity at 75 and cannot be done if you are in poor health - so it makes sense to consider action sooner rather than later. For example, as Mr Rothenberg said: "You can't change it if you are at death's door."


7.Consider tax-efficient investments
Several investments are free of IHT after they have been held for two years. These are shares quoted on the Alternative Investment Market (AIM), forestry land, farming land - provided you farm it, rather than rent it out - and partnerships or shares in a private business.

However, the favourable tax treatment should not blind you to the risks in these investments, particularly AIM shares. Small or recently formed companies are often more vulnerable to setbacks in a particular sector and may have smaller reserves to help them survive difficult conditions. There is no point losing capital to avoid tax.


8.Think of a PET
Potentially exempt transfers (PETs) are gifts of assets, cash or property you make before you die but you have to survive for seven years before they become IHT-free.

After three years, the beneficiary may get some tax relief which can increase each year until the seven years is up. However, if the gift is less than the nil-rate band the whole amount is added back into your estate when calculating how much you owe in death duties.

Mike Warburton of accountants Grant Thornton explained: "The tax relief is a discount on the tax, not the transfer itself. A single gift of £300,000 six years before the death of the donor will save nothing because the gift would all be within the nil rate band. This is frequently misunderstood."

You can't give your house away and continue to live there to diminish IHT liabilities, as the Revenue will regard it as remaining in your estate. But you can give it to a child who lives with you, said John Liddington of lawyers Speechly Bircham. He explained: "The child must live in the property until you die or go in to a home and you must both contribute to the running costs in order not to fall foul of tax rules."


9.Discounted gift schemes
These are single premium life policies which pay you an income for life and you give the policy itself away. Because it is paying a fixed income, the value of the policy is reduced. The actual discount is based on your age - the older you are the more valuable it is - so you have to be under 90 years old to use this type of scheme. However, it is important to understand that HM Revenue & Customs has pursued a strategy of challenging tax avoidance schemes in the courts which may continue in future.


10.Set up a trust in your will
Homeowners usually have the majority of their wealth tied up in their property. Without a trust, you cannot give away your share of the family home safely.

In this instance, the trust only comes into existence when you die. You will your assets and share of your house (held as tenants in common) to the trust up to the value of the nil-rate band, currently £300,000 and due to rise to £350,000 by 2010.

Then the trustees sell the share of the house back to the surviving spouse in return for an IOU. When the second person dies, the loan is repaid, thus using up the first person's nil-rate band.

It may sound simple but trusts are complicated and need a specialist to handle them. For example, earlier this year, the family of an Oxford don and his wife had to pay £60,000 in IHT when their trusts were considered to fall foul of IHT rules.

The problem was that Dr Patrick Phizackerley gave half his house to his wife, who then willed it to a trust on her death, and the trust lent him the share back until his death. However, the Special Commissioners, who settle disputes between taxpayers and the HM Revenue, ruled the scheme did not apply as Mary Phizackerley had no income and had not contributed to the house.

Mr Liddington said: "Since he'd given her half the house and then loaned it back to him via the trust after her death, he was considered to have lent his gift back to himself so the loan was not deductible for IHT."

Checklist - 10 things to do

1. Write a will and/or check that your existing will is up to date
   
   
2. Consider changing the legal form of ownership of your home
   
   
3. Equalise your assets so that both partners make use of tax allowances
   
   
4. Make gifts sooner rather than later
   
   
5. Put life assurance policies in trust and outside IHT
   
   
6. Check pension death benefits
   
   
7. Consider investing in tax shelters
   
   
8. Think of a PET - or Potentially Exempt Transfer
   
   
9. Discounted Gift Schemes may help - but beware pitfalls
   
   
10. Set up a trust in your will

What happens if a smoker lies on a life insurance policy

With life insurance, there are three different premium classifications: standard, preferred or preferred plus. By not smoking (or having not smoked for at least 5 years) and being in excellent health, you will be awarded with a lower life insurance rate because your chances of dying sooner are reduced.

If for instance, you are classified as "normal healthy," meaning you haven't used nicotine in at least three years-then you would fall into a standard classification with a life insurance company. Under this standard classification you would pay a normal life insurance rate for your age, as opposed to a smoker, who would pay a higher insurance rate because they are tagged a potential risk. Something to think about the next time you light up a cigarette!

Are you considered a smoker?
In the world of life insurance, by answering "yes" on your application to the questions, "do you smoke?" or "do you consider yourself a smoker?," you would be considered a smoker. The same goes for answering yes to the questions of "have you used tobacco products, cigarettes, cigars or chewing tobacco within a specified time?" By insurance standards, even if you smoke socially or just once a year, you are considered a smoker. For the occasional smoker, you should answer the question as best as you see fit.

The cost of smoking
Research shows that smokers pay at least three times the premium of nonsmokers-which is what motivates many people to lie on their life insurance applications.

To lie, or not to lie
With life insurance, a nonsmoker's application is due to be reviewed more thoroughly than a smoker's life insurance policy, because the premiums are so different.

It is possible for smokers to "cheat" the system, because nicotine clears out of your system within 72 hours after smoking your last cigarette. Cotinine is the primary metabolite of nicotine, and the most common identifier of nicotine levels. If the urine test is given 72 hours after your last cigarette, the nicotine level may be low enough to escape detection. This is theoretically possible for even the heaviest of smokers.

You passed! Now what?
The policy between you and your insurance company is a legal contract, so it is important that you do not lie about your smoking habits. If you were caught lying during the underwriting process, your rates would be bumped up to a smoker's rate when your policy is approved. No insurance company is going to come right out and says they are going to drop your policy if they found out that you were lying. However, some life insurance companies will place random phone calls to applications who are questioned on a multitude of things, even smoking. The survey is designed to weed out liars by listening for inconsistencies in the applicants' answers.

What happens if you are caught?
The worst thing that could happen if you are caught is that your life insurance policy will be issued at a higher rate.

What if you start smoking after the policy is issued?
Many life insurance companies go by the "don't ask, don't tell" idea. It is important to be truthful when filling out your life insurance policy, but if you start smoking after it's issued, you are not required to tell your insurance company. If you die, and your life insurance policy labels you as a nonsmoker, when indeed you began smoking, your death benefit will not be jeopardized.

If you are interested in purchasing a life insurance policy or would just like to get some life insurance quotes, visit the Post Office at http://www.postoffice.co.uk/portal/po/jump1?catId=19300223&mediaId=61000695

How much life insurance do I need?

'How much life insurance do I need?' is a question that is asked frequently. Basically, the cost of life insurance depends on two factors:

1. How much cover you want.
2. How long you want it for.

Then your age, sex, occupation, health and smoking habits are taken into account. The other issue affecting premiums is your medical history and current state of health. If you have any concerns, please do call us so we can advise on the most appropriate insurer for your circumstances.

There are many life insurance calculators out there, we recommend the This is Money website who have a good life insurance calculator.

Here are some typical life insurance costs taken from the Post Office in Jan 2009.

Level term monthly premiums

£100,000 of cover for a period of 10 years
	Female		Male
Age	Smoker	Non-smoker	Smoker	Non-smoker
25	£5.25	£5.00	£8.09	£6.17
30	£6.00	£5.00	£8.68	£6.18
35	£7.60	£6.60	£11.18	£7.58
40	£11.70	£7.87	£14.99	£9.28
45	£19.49	£10.58	£23.89	£13.18
50	£32.39	£15.79	£39.49	£19.39
55	£52.98	£24.40	£69.06	£30.71

£150,000 of cover for a period of 10 years
	Female		Male
Age	Smoker	Non-smoker	Smoker	Non-smoker
25	£7.85	£6.46	£11.15	£6.17
30	£9.35	£6.61	£12.20	£6.18
35	£12.05	£8.45	£15.65	£7.58
40	£17.60	£11.45	£22.40	£9.28
45	£29.45	£15.95	£36.01	£13.18
50	£48.05	£23.45	£58.85	£28.40
55	£79.66	£35.41	£103.25	£44.75

Decreasing term monthly premiums

£100,000 of cover for a period of 10 years
	Female		Male
Age	Smoker	Non-smoker	Smoker	Non-smoker
25	£5.00	£5.00	£6.12	£5.01
30	£5.02	£5.00	£6.47	£5.05
35	£6.06	£5.00	£8.06	£5.52
40	£8.01	£5.41	£10.58	£6.91
45	£12.76	£7.52	£16.11	£9.08
50	£21.31	£11.21	£25.91	£13.31
55	£34.21	£16.41	£43.21	£20.31

£150,000 of cover for a period of 10 years
	Female		Male
Age	Smoker	Non-smoker	Smoker	Non-smoker
25	£6.46	£5.71	£10.06	£6.76
30	£7.06	£6.01	£10.06	£6.76
35	£8.71	£6.01	£12.01	£9.16
40	£12.01	£7.66	£15.91	£9.91
45	£19.51	£11.41	£24.16	£13.66
50	£31.36	£16.81	£38.86	£19.96
55	£51.31	£24.61	£63.46	£30.46

Your monthly premium will depend on a number of things, including the level, type and length of cover, medical history, your age and gender and whether or not you smoke. Some typical monthly premiums are shown below. You can apply for life insurance if you are between 18 and 66.

Get a life insurance quote from the Post Office or call 0800 096 5484*.

How much life cover do I need?
If you're the breadwinner, you will want to keep your family in something like the style to which they have become accustomed. If you're a carer, then you want to provide cash for professionals to take over because you're not around.

Generally speaking, the figure should be enough to produce around two thirds of your earnings or £20,000 for professional care each year.

How long for?
Until your dependants are old enough to look after themselves. 20 years is about right for most people, or until your savings can adequately provide for you and your partner - possibly by the time you're 60 years old.

How much mortgage cover do I need and for how long?
You need to cover the amount of the outstanding debt, up until the debt is paid off.

What type of cover do I need?
Is your mortgage a repayment one? If so, you need a Decreasing Term Assurance policy. Or is it an interest-only mortgage, in which case you need a level term policy.

Life Insurance

1 in 3 is the number of families who have no life insurance cover, critical illness insurance, or income protection cover in place. It is very important that people understand exactly what they are buying. Speak to a life insurance and protection adviser who will highlight appropriate policies. People should view income protection, critical illness, life insurance, private medical insurance and mortgage payment protection insurance as a basket of goods, choosing which are most relevant for them at any given moment.

When buying insurance, you can be overwhelmed by an information avalanche. To protect your future from poor choices today, try searching in terms of the 5 W's:

Who? What? Where? When? Why? and How much?

Who?
The classic argument to avoid life insurance runs, "If I die, why do I need money?" You don't -- but your family, your business or your favorite charity might. So anyone with dependents, human or otherwise, might need life insurance. Of course, if you don't need to protect anyone else, insurance is not a wise way to spend money.

What?
People approach life insurance with predisposed notions. They might be oriented to term insurance, yet don't have a good argument as to why. Any kind of insurance is a contract with requirements on both sides. Unfortunately, too many people think life insurance is a commodity, like going to the grocery store and picking up a piece of fruit to judge."

"Term" insurance forms the base of every life insurance policy. Think of it as renting a safety net: The owner pays a fixed premium toward a concrete payoff over a specific time. If you die during this period, the insurance company pays the promised amount. When the policy reaches its deadline, the coverage vanishes.

Some insurers offer convertible policies that allow a return client to take out another policy at the rate of a healthy person, but you pay a higher premium for the privilege. Insurance companies also offer three variations of permanent life insurance - that is, insurance that covers you for your entire life.

"Whole life" offers term insurance's set payoff for a set premium, except this policy doesn't come with an ending date. You'll pay the premium for the rest of your life, unless you decide to cash in and receive the cash value as a lump sum.

With "universal life", the insurance company separates the investment and death benefit portions, socking your investment dollars into its choice of bonds, mortgages and money market funds. Then your investment fund pays for the cost of the set death benefit. And, according to LIFE, no matter how badly the investments pan out, the insurance company guarantees you a minimum return.

You, as the policyholder, can change the premiums and death benefits to suit your current budget, so this appeals to younger crowds.

Finally, if you buy variable life, the death benefit payoff depends on your success in picking investment opportunities with the money (although the insurance company does cough up a guaranteed minimum death benefit at your death if you screw up too badly). These policies must be registered with the U.S. Securities and Exchange Commission.

Where?
Approximately 90 percent of life insurance is sold at the kitchen table; a growing 7 percent to 10 percent is sold over the Internet, according to AccuQuote's statistics. In either case, caution should prevail. This is not something you want to screw up and leave someone in the lurch.

When?
If you buy a term policy, there's no penalty to committing today. Just as homeowners refinance mortgages at lower interest rates, life insurance policyholders can cancel a policy at any time to replace it with a less expensive equivalent -- providing their health remains stable, of course.

Why?
Life insurance provides instant liquidity to meet the obligations that become due upon your death. It's a pool of money to complete what you can't finish. It's also not taxable income. Of course, don't make it your sole investment strategy. Other vehicles' returns beat permanent insurance products hands down!

The old story is to buy term and invest the rest. And that's fine if you immediately put that extra money into an investment vehicle, but it does take discipline to do that. If you don't, check universal or whole life.

How much?
When pondering coverage, buyers first should inventory their assets:

• job insurance perks
• social Security benefits
• IRA accumulations
• stocks
• bonds
• savings accounts

Then consider factors, such as how many people work in your household and if your need is temporary or permanent. For instance, do you want your spouse to stop working to care for the children?

"We don't want to think about these objectives because it's unpleasant for ourselves. It's easier to flip on a computer, say I need £125,000 and discover it costs X amount per month! Many buyers arrive at coverage numbers using the popular formula of four times their annual current salary. Wrong.

Too frequently people go into this half cocked with numbers they literally pull out of the sky. Taking a simple multiple of your current earnings is so nonspecific, it doesn't add up.
You should rely on a capital assessment to determine coverage need.

I typically tell people during the accumulation phase of their financial life that now is the time you can start cutting back on life insurance. Instead, build up your capacity to self-insure. Otherwise, here I am five years down the road with pay raises, and I'm still using a multiplier of four times whatever my income is. I'm basically buying more life insurance than I need."

As yourself this question "If I wrote you a cheque today for the amount on your insurance policy, would you work for me for the rest of your life at no pay?"

Next, is the price you pay reasonable? Insurance companies use life expectancy tables and risk classes to determine rates, then factor in underwriting costs. They consider mortality rates over time, so isolated events, such as the Sept. 11 attacks, don't significantly impact rates.

Today, Internet speed means companies compete on rates by the minute, so overall life insurance rates have plummeted nearly 60% from their costs just seven years ago. Yet a 40-year-old in good health seeking a 20-year term policy can find quotes ranging from £18 to £100.

The middle of the pack is almost double what you need to be paying, and believe me, plenty of companies in this level sell tons of life insurance. However, a few extra pounds for an A-plus-rated firm makes sense. Niceties like convertibility and quick claims processing stack up, too. In other words, cheapest isn't the only consideration.

Anything within £15 and £30 annually isn't worth the savings to deal with a poor company!

People often say, 'When I buy life insurance I'm betting against myself.' That's the worst expression I've ever heard,"

When you purchase life insurance, you're betting you'll live but providing an assurance in case you're wrong!

Wrong Cover Life Insurance?

According to the Association of British Insurers, more than half of British households have no life insurance—and of those who do invest in some protection, a large number have too little insurance, too much, or are simply paying for the wrong type of life cover. Simply having a policy is no longer enough.

There is a large range of options for life insurance, and it’s important to choose life insurance that will meet your current needs and provide adequate protection for your family.

You could be paying too much money for the wrong cover if:

• You’ve gotten married, had children, taken out or paid off a mortgage, divorced or retired without reviewing your policy
• You haven’t reviewed your policy within the last five years
• You bought any type of life insurance without first determining exactly what type of policy you needed
• You bought the life insurance cover that a salesperson told you was necessary, rather than seeking independent financial advice.
  

Choosing the Right Policy

Choosing life cover that will suit your lifestyle and family circumstances requires some careful consideration before you start shopping for policies. Depending on whether you’re married or divorced, have young children or adult children, are working or retired, your insurance needs are quite different.

Consider the following example. Let’s say you’ve just gotten married, and you and your spouse don’t plan to have children for around ten years. For the first ten years of your married life, the type of insurance you get may very well depend mostly on what you can afford. You won’t need a long term insurance policy, because your insurance needs will change when you start having children.

As a young couple with no children, a joint term policy is both cost effective and sufficient for your needs. However, when you have children, you will most likely want to increase the value of your policy, opt for two separate policies rather than a single joint policy, and also consider switching to whole life insurance. When your children become financially independent, you’ll again want to review your cover, and you may find that your insurance needs have reduced at this time.

One important point to note is that it’s better to seek advice from an independent insurance or financial adviser. An independent broker is in a much better position to shop around and find you the best prices, whereas a broker who represents a single provider is unable to provide this benefit—and sometimes they’re more likely to pressure you into choosing a policy that won’t meet your needs. You can find a database of independent financial advisers in the UK at www.unbiased.co.uk.

If you are certain about your life cover needs, you could also consider a discount broker such as Life Saver who will rebate some or all of their commissions to reduce the premiums you pay. Many of these brokers do not offer advice so this option is not suitable if you are unsure which product is right for you.


Insuring yourself for the Right Amount

How much should you cover yourself for? This depends not only on what you can afford, but also on your current lifestyle and expenses. A good rule of thumb is to choose a policy that is worth around ten times your annual income, before tax. However, if you have young children or a mortgage, you may want to consider a higher sum—for example, you might add the value of your mortgage to the sum assured if not already covered by another policy.

Note, however, that depending on your circumstances it may be more prudent to opt for a separate policy to cover your mortgage. If you don’t have much money to spare for insurance, choosing a decreasing term mortgage policy is a good option—this keeps your premiums lower, as the amount you’re insured for decreases as the mortgage is paid.

Action Steps

1. Review your life insurance if you have had a policy for more than five years or if your personal or financial circumstances have changed.
2. Take advice from an independent adviser if you are unsure about the type, amount or term of your policy.
   

Why Get Life Insurance?

Surfing the web has made the process of applying for life insurance a lot easier than days gone by. You can now get life insurance application processed in a matter of minutes rather than days.

Life insurance is a tricky subject as nobody wants to think the worst and especially if you are healthy and feel no need for it. However, life is very fragile. You only have to look in your daily newspaper every week to see those who have passed away and they are of all ages, not just the elderly. Life can be taken without a moments notice and leave your loved ones struggling without your financial help, especially if you have a mortgage or other financial commitments. This is why life insurance is so important.

Why Get Life Insurance?
Ignoring life insurance could put your family in a desperate financial position during a time when they are grieving at your passing. The last thing you want is for them to worry about money and paying the bills.

The massive choice of life insurance policies online can be overwhelming so here are some tips on how to decide what is the best life insurance cover for you.

1. Ensure that you know exactly what you want. If you do not define your goals before you go looking for life insurance, you may end up selecting the wrong policy.
   
   
2. Life insurance isn’t restricted to family men and women alone as business partners can also take out life insurance. If you want to ensure that your business stays afloat even after your death, you can take life insurance. As long as you have a beneficiary, life insurance is definitely not a wasted effort.
   
   
3. The beauty about life insurance lies in the fact that the beneficiary will obtain a large amount of cash to continue the lifestyle he or she was living before. The life policy you buy can eventually be used by beneficiaries to pay off a mortgage on the home. Life insurance ensures that your family has the life that they have always been used to.
   

Term Life Insurance
Term life insurance policy encompasses a contractual agreement between you and an insurance company in which you agree to pay a certain amount as premiums for a number of years. If you die before your term life insurance is up in a term life insurance, your recipient will receive the amount that the policy is worth.

Whole Life Insurance
A whole life insurance is one that covers you for the duration of your life. With a whole life insurance, you get to save some cash and use the cash for useful things such as your child’s education in college. Whole life insurance gives you the opportunity to gather more money through compulsory savings.

Shop around online for life insurance using a combination of price comparison sites and independent websites to get the best product at the best price for you.

Unfair or Logical

Are Life Insurance companies unfair or simply being logical? Newspaper reports in the early months of 2008 that life insurance companies will start charging overweight customers up to 50% more in premiums, begs the question whether they are being unfair or simply driven by actuarial logic.

Some people might consider it "unfair" that because they are overweight, they should have to pay, for example, £1,500 a year for a £150,000 life cover whereas his leaner peers will be paying only £1,000.

But the sheer logic of the situation is that life insurance companies are in the business of assessing the risk of an early death of their policy holders. And obesity is a medical condition with attendant health problems that can lead to an early death. Obesity has been linked as a major contributor, for example, to heart and liver problems, diabetes and certain forms of cancer. Many insurers, therefore, are paying increasing attention to the critical "body mass index" (or BMI) in new proposals for life cover.

The body mass index is a simple measure, widely used in medical circles, as an indicator of obesity. It is the index derived by dividing a person's weight (in kilograms) by their height (in metres) and dividing that result by their height (in metres) once again. A resulting index of 30 or more is classified as "obese" and a result of 40 or more as "very obese". According to responses to press questions from Britain's largest life insurance company, some 13% of new proposals are being made by individuals reporting a body mass index in excess of 30. This appears to be the marker at which many life insurance companies are introducing higher premium rates.

The actuarial logic of the situation is not lost on the Association of British Insurers, of course, who have said that obesity increases the risk of contracting certain diseases. A spokesman commented that premium increases for the overweight should be considered in the same light as those increases already applied to smokers or to those with previous or pre-existing medical conditions. In fact, when taken together, the difference in the cost of premiums for someone of the same age and gender in the lowest and in the highest risk groups can be as high as 400% - reverting to the example used earlier, that would be the difference between £1,000 and £4,000 each year for £150,000-worth of life cover.

Just in case these figures give any encouragement to lie about your weight or height on the proposal form, there is a salutary warning from the Financial Ombudsman. The latter recently determined a disputed claim arising from the death of a 37 year-old man who had declared to his insurers a height of 6ft and a weight of 16 stone. He died some months after the start of the life cover, but his life insurance company rejected the claim when it was revealed that he was actually 5ft 9in tall and weighed 21 stone (measurements that would have increased his premium by 275%). The Financial Ombudsman ruled that the insurer had been right in rejecting the claim.

Confused.com is one of the UK's biggest and most popular price comparison services helping consumers save money.

Is Suicide Covered on Life Insurance?

The unfortunate and depressing issue of suicide has become a staggering piece of harsh reality in today’s world. The US rank 46th in the world with 11,000 self-inflicted deaths per year. Here in the UK we are at 7000 position.

This has become a serious issue for many countries whether the factors be family issues, health issues, money problems, or relationship failures.

We’ve all seen this scenario before, either in a movie or on the evening news. A spouse, distraught over his or her family’s crushing financial burden, decides to commit suicide so that the surviving family members can collect his or her life insurance benefits. For Jimmy Stewart in It’s a Wonderful Life, his intended act of suicide was halted through the intervention of a guardian angel and everyone lived happily ever after. Unfortunately, this is not the way the story ends for families living in the real world.

What really happens to a family in the aftermath of a suicide attempt can be many times more devastating than the original circumstances that led to the attempt. If the attempt is successful, then the survivors may be left with a double tragedy. Not only have they lost a loved one, but what if the relevant life insurance policy will not pay benefits in the event of a suicide? Now the surviving family members are looking at even more debt because of funeral and burial costs and the deceased’s lost income.

If the suicide attempt is unsuccessful and there is no lasting injury, then the disturbed individual and his or her family are very lucky. There is no loss of a loved one and psychological counselling can be sought. Most health insurance policies will even pay for the treatment. If, on the other hand, a suicide attempt leaves the individual physically incapacitated permanently or for an extended period of time, this could spell even greater financial disaster for the affected family members. If the individual is also the primary wage earner, then the family has lost its major source of income (along with any attendant benefits) and must pay for physical care that may not be covered by any insurance policies.

The information that follows gives a brief overview of different insurance policies and what they will or will not cover in the case of a suicide or suicide attempt.

Suicide Coverage

The desperate soul who rushes out to buy an insurance policy and then immediately commits suicide is misguided in two respects: first, he or she should have sought help from a mental health professional for assistance in dealing with such self-destructive thoughts; and, second, the life insurance policy won’t pay if the suicide is committed immediately after its purchase.

Most life insurance policies have a suicide clause. Either death resulting from suicide is not covered at all or a death resulting from suicide is covered only after two years have passed since the date of the policy’s purchase. Why the two-year period? It’s thought that a clause that excludes suicide as a valid cause of death in the first two years of the policy’s life will stop someone contemplating suicide from buying the policy on impulse. There’s no immediate benefit, so they won’t buy the policy. Even if a person intent on committing suicide does buy a policy, the chances that they will still want to end their life after waiting two years is slim. There are life insurance policies that do not exclude suicide at all, but most of these plans are prohibitively expensive.

Coverage for Suicide Attempts

The most relevant type of life insurance coverage for someone who has survived a suicide attempt is health insurance. Obviously, someone who attempts suicide is in need of psychological help and many health insurance plans will pay for this. Some families might be hesitant to use this benefit because of the stigma attached to suicide and may be concerned that word of the family member’s mental health problems will become the subject of workplace gossip. Fortunately, those who handle and view insurance claims in an office are bound to strict rules of confidentiality and are prohibited from discussing any worker’s medical or psychological condition. The family can seek treatment and know that word of their situation will not be spread.

If someone survives a suicide attempt but sustains injuries that are permanent or that require long-term care, the situation can be pretty grim. Most health insurance companies will not cover injuries that are self-inflicted. So, things like hospital bills, rehabilitation costs, doctor’s bills, home care attendants and all other potential medical necessities would have to be paid for by the individual who attempted suicide.