Life Insurance (also referred to as Term Assurance) pays out a tax-free cash lump sum to your loved ones should you pass away.
Sadly, the grief of losing a loved one is often compounded by a loss of income which can often cause a financial crisis. Life insurance is one of the lowest cost ways to protect your family’s finances if the worst happens.
We all have a natural tendency to hope that something unexpected won’t happen to us, but sadly the statistics are quite sobering:
- A parent of children under 18 dies every 22 minutes in the UK, around 23,600 a year
- You are six times more likely to pass away before retirement than most people think
- More than one in six people said that their loved ones would have to sell the family home to survive if they passed away.
You can also opt to include Critical Illness or ‘Dread disease’ Insurance for an additional premium to offer a pay-out should you suffer a serious illness such as cancer, and the statistics do again highlight the need to consider all possibilities:
- 1 in 2 people in the UK will get cancer at some point in their lives and 2.5 million people in the UK are living with cancer. (Cancer Research UK).
- Every 7 minutes, someone in the UK will have a heart attack and 1.5 million people are living with the after effects of a heart attack. (British Heart Foundation).
- Over 100,000 people are living with MS in the UK with symptoms usually starting between age 20 and age 40. (MS Society).
- Every year in the UK, over 100,000 people will have a stroke and more than 1.2 million people in the UK are living with the after effects of a stroke. (Stroke Association).
Of course this news is sad and sobering. But should it be ignored? Just take 2 minutes now to think how your passing away now will affect the family that you leave behind.
Two of the most common uses of Life Insurance include covering an outstanding mortgage balance, allowing your loved ones to stay in the family home should you pass away and using Life Insurance to provide financial security for your family after your death. A combination of the two is of course also possible, depending on your needs.
How much does life insurance cost?
The cost of Life Assurance will depend on a number of different factors, with the main ones being;
- How much you choose to insure your life for
- How long you want to insure your life for
- The sort of life insurance policy you choose
- Your current state of health and any pre-existing medical conditions
- Your employment
- Your smoker status.
Naturally the longer the delay before starting an application the more expensive it will be. A 30 year old will pay less per annum than a 55 year old if all other factors stay the same.
You might agree that this could be a small price to pay for providing yourself and your family with peace of mind and financial security.
You should also consider putting the life insurance in Trust to avoid benefits being delayed by probate and to avoid exposure to Inheritance Tax (IHT) in some cases. This is one of the best ways to protect your family’s future in the event of your death. Your life insurance policy is a significant asset, and by putting life insurance in Trust you can manage the way your beneficiaries receive their inheritance.
However, here is the deal. One of our clients recently died; they died with all kinds of insurance, like mobile telephone insurance, and insurance on a washing machine. These insurances cost all together around £74 per month.
They were paying £74 per month for lots of insurances that were covering items that cost around £2,000. Well, that was original price, as in reality they were probably worth half that. However, there were no life assurances.
The client had recently moved his financial plans and investment management to us. Despite our discussions the client felt that Life Insurance was a waste of money. A client who dies with NO Life insurance or Critical Illness cover, no matter how unpopular it is for us to talk about, dies leaving their beneficiaries with some worthless assets and no money.
For the same £74 a month that this client was paying for insurances that were not really that significant or important, you could have protection in place for your beneficiaries (subject to health and underwriting).
Life insurance or Critical Illness cover is relatively cheap when you look at what it provides. Yes, it relies on health checkups and is subject to underwriting, but don’t you think the hassle is worth it for the security it provides?
Surely, everyone’s objective is to target security for you, your partner, your children rather than having cover in the off-chance that your washing machine breaks.
To discuss your options please do get in touch.
Lee Hinton is an Associate Member of the Chartered Institute of Securities and Investments, holds the Cyprus Ministry of Finance Advanced Examination certificate and holds the UK Diploma in Financial Planning.
