Life Insurance for Pilots

Frequently Asked Questions

• Should I Add Critical Illness Cover?

  While Life Insurance provides protection if you were to pass away during the term of the policy, you may want to consider what would happen if you developed a critical illness as well.

  Adding Critical Illness Insurance to your policy will provide a payout should you suffer a critical illness specified by the insurer. The most common claims on such policies are for cancer, heart attacks and strokes, although conditions such as multiple sclerosis, Parkinson’s disease and loss of limbs also tend to be included.

  As you’re more likely to become ill than you are to pass away, the cost of Life Insurance with added Critical Illness Cover is significantly more than Life Insurance on its own. You may therefore choose to have the Critical Illness Insurance pay out a lesser amount than the full Life Insurance benefit to keep costs low.

  When Income Protection Could Be More Suitable…

  If you’re worried about an illness or injury stopping you working and paying the mortgage on the family home or meeting other bills and expenses it may make more sense to opt for Pilots Income Protection alongside Life Insurance rather than adding Critical Illness Cover.

  This covers you for any illness or injury which stops you from working and will pay out a regular income for as long as you need it, rather than just one lump sum.

  Income Protection tends to be seen as more comprehensive than Critical Illness Insurance because it pays out for anything that medically prevents you from working, rather than just an illness of a specified severity.

• Should I Opt for Indexation?

  Some people prefer to index-link Life Insurance so that their payout won’t be eroded by the effects of inflation.

  Life Insurance is a long-term product, so it’s inevitable that inflation will take a bite out of your benefit over time.

  If the benefit is for family protection, then rising prices (inflation) means that the basket of goods and services your payout could buy in the future may be smaller than today, not leaving your loved ones with enough to maintain their standard of living if you passed away in the future.

  This is less of a concern with Decreasing Term Insurance, because it is used to protect a known debt such as a repayment mortgage with the benefit designed to fall over time.

  However, if you are trying to protect your family’s standard of living until they are of an age where they are self sufficient, inflation could do a lot of damage to the real purchasing power of the benefit over time.

  In such cases opting to index your benefit amount means your family would have the same purchasing power whether a claim is made today or 20 years down the road.

• Reviewable or Guaranteed Premiums

  With Life Insurance you can choose to either guarantee your premiums so that they stay fixed (unless you’ve indexed them, in which case premiums will rise each year along with your benefit rising with inflation).

  The alternative is reviewable premiums. As the insurer can adjust these each year as they see fit, the issue becomes that you never know how much your Life Insurance will cost year-on-year, and your premiums could rise significantly over the course of your policy.

  Whether or not reviewable premiums are right for you depends on your circumstances, but they can increase the cost of cover significantly over time. Guaranteed premiums may start off more expensive, but they’ll usually work out cheaper over the life of the policy.

• Will My Medical History Impact My Life Insurance Application?

  When you apply for your Life Insurance you’ll be medically underwritten, which entails you being asked a series of medical questions to assess your current state of health and therefore the level of risk you present to the insurer.

  Although this is sufficient for insurers to price cover for the vast majority of applicants, in some instances further medical evidence may be required because of:

  • Your age
  • The size of the benefit you’re requesting
  • Medical conditions / your state of health
  • Your BMI
  • Smoker status
  • Family history of hereditary illnesses
  • Any combination of the above.

  While most applications don’t need additional information, some will. It’s difficult to say whether or not additional medical evidence will be required because the thresholds differ from insurer to insurer. Some are more lenient than others and it will also depend on the applicant.

  Additional information required may include a GP report, a nurse’s screening or a full-blown medical with a doctor, which will all be paid for by the insurer and held at your convenience.

• Will I Need a Medical for Life Insurance?

  Not everyone needs a medical for Life Insurance, so it’s perfectly possible to get Life Insurance with no medical screening.

  Especially if you’re young, the benefit you’re applying for is modest and you don’t have any health conditions then it’s entirely reasonable that you could take out cover without ever needing a medical examination.

  For pilots Life Insurance, this might be especially the case given that you have to be in the best shape possible to pass regular physicals to ensure you remain fit to fly.

  If, however, you’re a little older and are applying for a higher benefit, you may find that the insurer requests further medical evidence from you. This could take the form of a GP report, a nurse’s screening or a full blown medical with a doctor depending on what comes up in the application.l

• Do I Need to Write My Life Insurance Into Trust?

  For most people, buying Life Insurance can be like buying peace of mind. You know that your loved ones will be taken care of no matter what happens to you.

  However, what many people don’t realise is that the payout from a Pilots Life Insurance policy may be subject to inheritance tax, which could take a 40% bite out of any legacy you leave for your loved ones.

  If you’ve gone to all the trouble of carefully calculating how much your loved ones will need then you don’t want anything to take cash out of your family’s hands, but inheritance tax could do just this.

  While Life Insurance is free from income tax, if you pass away and the Life Insurance policy pays out to your estate it may be subject to inheritance tax at 40%.

  This bill must usually be paid before your family even gets access to your estate, which could cause significant financial hardship. Many people don’t realise this and could be in for a bit of a shock to receive such a big bill form HMRC at a difficult time.

  Inheritance Tax for Unmarried Couple with Life Insurance

  If you’re not married then the inheritance tax implications on any wealth you leave behind, including Life Insurance payouts, are even greater.

  While married couples can leave Life Insurance to each other usually IHT-free, there’s no such protection for cohabiting couples — you need to be married.

  With a rise in the number of families made up of unmarried couples named in each other’s Life Insurance, it’s rapidly becoming the case that the spousal exemption is available to fewer and fewer people.

  Avoid Inheritance Tax by Writing Life Insurance into Trust

  The best way to avoid inheritance tax on Life Insurance is to write the policy into trust from the outset.

  This involves the payout going into a legally separate entity (the trust) from your estate, so it never counts towards your inheritance tax bill. The trustees (those people you’ve entrusted to distribute the funds should you pass away) then pass on the benefit to your loved ones from the trust, sidestepping any inheritance tax burden on the payout.

  Although this may sound complicated, it’s free of charge and Drewberry’s advisers help our clients with this every day and are more than happy to walk you through the steps required to ensure your loved ones receive every penny they deserve.