Is your life worth insuring?
If you're not particularly wealthy, it's easy to underestimate the financial contribution you make to your family.
Although you may not think you need life insurance you might want to consider buying a policy if you fall into any of the following categories.
Are you the main wage earner?
Could your partner meet day-to-day living costs after your death or provide for your children's future without your income? If you don't have a life insurance policy, your family could be saddled with massive debts they could not afford to pay.
If you have a joint mortgage, your other half may not be able to afford the repayments on your home without your earnings.
Further, a payout from your insurance policy could help your dependents maintain their standard of living after you pass away.
Are you a stay-at-home parent?
If you are the main childcare provider, your death could devastate your family - both emotionally and financially. Your other half may need to find the money to pay for expensive childcare and other domestic costs.
Many stay at home parents prepare meals, do laundry, act as a chauffeur (the list is endless). Should you pass away, your family is unlikely to find someone else who would provide these services free of charge.
In fact, Home Shield Insurance puts the financial value of a stay-at-home parent at £23,000 per year.
Has your life changed?
Whenever you undergo a major life event such as having a child or getting married (even divorced), it's a good idea to reassess your financial affairs.
For example, you may need to replace a joint life policy you had with a former partner if you end the relationship.
Even getting a promotion could necessitate a review of your life insurance. If you are suddenly earning more, it might be worth increasing your cover to reflect the change in your financial situation. Otherwise your family could be forced to revert to a more frugal way of life without your income.
Do you have debts?
If you have a number of creditors and few assets, a life insurance policy could spare your family from financial hardship after your death.
Even if you do have assets to bequeath, the value of your debts will be deducted from your estate. If a large chunk of your estate goes toward covering your debts your family may be left with very little.
A lump sum from your life insurance policy could help pay your creditors and make sure your family reaps as much benefit as possible from any assets you may have.
What are Fixed and Reviewable Permiums
Fixed premiums means that the monthly insurance premium you pay is the same each month for the life of the policy. If you pay £10 per month at the start of your 20 year life insurance policy, you will still be paying £10 per month 19 years down the line. Fixed rates are very slightly more expensive than reviewable, but they are guaranteed.
Reviewable premiums mean the insurer has the right to increase or decrease the monthly premium you pay with 1 months notice. Based on our experience you will see slight increases each year as you get older and the risk to the insurer having to pay out becomes more likely. Although the premiums are very slightly cheaper in the beginning, the risk is they often become quite expensive as the insurance term progresses.
What is Level or Decreasing Cover
If you choose Level Cover (most common), your policy is worth the same in 20 years as it is on the day you purchase it. If you have a £100,000 policy for 20 years, and you die in year 1, it pays £100,000 to the beneficiary. If you die in year 19, it would still pay £100,000. The sum insured remains “level” for the whole of the policy’s life.
Decreasing cover means the sum insured decreases over the policy’s life. If you die in year one it would pay £100,000, however if you die in year 19 the policy may only be worth £1,000 or £2,000 by then – depending on interest rates – Decreasing policies are index linked. This cover is not the most common option because your mortgage and other financial commitments change over the years – and if for some reason you don’t review your cover often enough, you could end up being significantly underinsured without realising.
What are Trusts
A trust sounds complicated, but is actually a very straightforward procedure, which we take care of completely free of charge.
If you basically understand that any inheritance left in trust is exempt from inheritance tax and probate, it becomes easy to get your head around!
Even if your policy itself isn’t high enough to be eligible for taxes, together with any other assets you own at the time of your death – your loved ones could get lumbered with huge tax bills. Its best advice, and best for your family for you to remove lump sums (life insurance and critical illness insurance) from the equation. Trusts also bypass any probate – so if you don’t have a will, or there is a legal objection raised regarding your estate, the trust cannot be included in the red tape, and will simply pay, tax free, very quickly, to the beneficiaries of your choice.
All you need to do is name your beneficiary’s, and nominate someone to oversee the payments, and we take care of the rest – it’s only a simple form!
We do of course issue you with an information pack giving you all the details you need to make good informed decisions about your trust, in more complicated situations we are obliged to let you know that you may choose to seek advice from a solicitor first.
How long can cover last
The length of the policy is entirely up to yourself and your particular needs, most people at least cover themselves to the end of their mortgage term. So if you have just taken out a 25 year mortgage you might want to consider covering yourself for a minimum of 25 years. Whole of Life policies are also available meaning there is no time limit on when the policy will pay out to, as long as your pay your premiums the policy will continue until you die. Whole of Life policies tend to be more expensive.
Top tips for buying life insurance
By setting up your policy in a trust you could avoid paying inheritance tax - which could be as high as 40 per cent.
Remember to investigate any death in service benefits offered by your employer.
If you are a smoker or overweight, banishing those bad habits could help you cut the cost of your premiums and even live longer. |
