If you’re looking into Life Insurance but are still on the fence whether to go ahead, check out these 6 key reasons why you might consider securing the cover for yourself and your family.
Buying a new home
If you die before your mortgage is repaid, then the responsibility to complete payments falls to someone you love. Life insurance enables you to be proactive about ensuring those you care for can meet those financial commitments after you’ve gone.
Decreasing cover life insurance is a type of cover that helps if you have a repayment mortgage or other sizeable reducing debt. The longer your cover is in place, the less is paid out. This is because your debts are also decreasing, and the insurance is there to help cover these payments. The monthly premiums for this type of policy may also be lower.
If you have an interest-only mortgage, you might be more interested in level-term life insurance. This is where payouts are fixed and the policy is in place for a pre-determined amount of time. The advantage of this kind of cover is that your family’s payout would be the same whether you died a year into your policy or a year before it expired.
Just married.
If you’ve recently become engaged or married and are joining families and assets, it can make life easier to know you are both covered if one of you were to die. Life insurance enables you to make financial contributions to your partner’s well-being after you’ve departed – which is a beautiful way to honour your marriage vows.The type of policy that you take out could be single – i.e. only covering you – or joint. A joint policy is usually cheaper than purchasing two single policies, but in most instances, it only pays out once, if you make a claim, you are no longer covered – the surviving partner would need to take out their own individual policy after that.
Two single policies can pay out upon the deaths of each policy holder and can take away the complexity in the unfortunate circumstance that the relationship comes to an end.
There are pros and cons to both types of policy, but it's important to know that if a relationship breaks down, an insurance provider may not be able to divide a joint life policy into two single policies. Also, if you claim on a joint policy and choose to apply for a single policy later in life, it can be expensive because premiums increase with age.
Having a baby
The cost of raising a child is expensive, even before factoring in considerations like private education and university contributions. There are policies available that run until your child reaches maturity – and after they’re 18, it’s up to you what “maturity” means.
Providing for your child to protect them against the unexpected is a way to give yourself peace of mind and enjoy the present with them more fully. Level and increasing cover term insurance are policies which pay out lump sums if you die within your agreed term. If you wish to leave a sum of money to your kids rather than pay off debts, then consider an increasing or level term policy.
Planning for a funeral
According to British Seniors Funeral Report 2021*, between 2016-2021 the average cost of a funeral was around £5,631. Over 50s policies as well as level and increasing term policies can be used to contribute towards funeral payments. Over 50s life cover differs from term life in that there is no fixed length to the policy; it simply exists as long as you live and pays out upon your death. That doesn’t mean to say that you will pay indefinitely for a fixed sum of money though. You will stop paying premiums when you pass away, on your 95th birthday or on the policy anniversary date. The payout doesn’t necessarily need to contribute towards your funeral, however if that is your main motivation for taking out the policy then you might also want to consider a Funeral Benefit Option.
Inheritance tax
Another reason people may decide they need life insurance is inheritance tax. Inheritance tax has become a bit of a bogey man for those intending to leave money for their children once they die. Bills can run into tens of thousands of pounds, which can make a significant dent in your children’s inheritance. However, if you were to buy a life insurance policy that covered the tax bill, they could enjoy everything you intended them to receive.You may also want to put your insurance policy into a trust. If the conditions of your trust are met, then this means that your assets no longer belong to you, but to the trust. In accordance with HMRC rules, your assets could then be exempt from inheritance tax. You would be able to decide how the trust is managed, for example whether your assets go straight to the beneficiary after your death or are retained by a trustee until your beneficiary reaches a certain age.
Trusts come with important legal implications, and should only be entered into after thorough discussion with an impartial legal or financial consultant. Once you have placed your policy in trust, it is very difficult to undo this, so being certain of what you are doing beforehand is crucial. There are several kinds of trust available, so it is also important to think long-term about how you want your money to be handled when considering this path.
The next generation
Getting older is a fact of life, and has a tendency to make us reflect. If you are at such a point in your life – whether due to age, ill-health or any of the above reasons – then the financial security of the next generation will be on your mind. Life insurance helps you put these worries to rest and focus on enjoying the future.
