LIFE INSURANCE: DO YOU KNOW THE INS AND OUTS?

What is life Insurance?
Life Insurance is a policy that pays out a benefit (usually a lump sum) on the death of the life assured.

Most Life Insurance policies are written to cover a specified term, hence the name given to it of Term Insurance.  With a Term Insurance policy, if the life assured dies during the term the policy pays out, but if the life assured survives the term then the policy simply ends with no cash value. Term Insurance policies are often used for mortgage and family protection reasons.

Sometimes a client needs a Life Insurance policy that will pay out whenever the policyholder dies. In these instances, a type of policy called Whole of Life Insurance is used. This is referred to as a “Whole of Life” assurance policy (assurance as you are “assured to die!”). These policies are often used to pay an Inheritance Tax liability.

SO WHO NEEDS LIFE INSURANCE? 

Typically, Life Insurance is used to give your family financial protection should you die within the specified policy term. It will leave a lump sum behind, which will help your family and loved ones maintain their living standards or pay mortgage costs.

Examples can include:

• People with financially dependent children
• People with debt (e.g. a mortgage)
• People who have a potential inheritance tax liability upon their death
• People whose death will cause financial hardship for their spouse (e.g. upon their death the loss of pension benefits will push a spouse into financial hardship)

HOW MUCH CAN IT COST?

Term Insurance is a relatively a low-cost type of insurance. Cost can vary from provider to provider but all providers take into account your health, lifestyle, term of the policy and level of cover ie the sum assured. According to MoneySuperMarket data*, those in the 31 to 39 age group will pay an average of £7.93 per month for £100,000 of level term life insurance only for a single policy, while those in the 40 to 49 bracket will pay around £13.12 per month. If an average latte costs £2.85, that is very good value to protect your loved ones.

So, if you are reading this and have financially dependent children, we would encourage you to speak to an Independent Financial Adviser to review your life insurance needs. Advisers will often rank life insurance as a significant priority when assessing a clients financial needs. It is worth bearing in mind that many of us with families spend hundreds if not thousands of pounds on a holiday but do not have life insurance. Could your family financially struggle if you had no life cover in place?

Whole of Life Assurance is a more expensive option because the Life Insurance company knows that there will be a pay out at some point (assuming the monthly premiums continue to be paid).

WHAT IF I HAVE DEATH-IN-SERVICE? IS THAT NOT ENOUGH? 

It is probably best not to rely on Death-in-Service for your family’s protection needs. If you change job, then your Death-in-Service at the new employer may be less or possibly not offered at all.

Please get in touch if you have any questions, or want to discuss arranging Life Insurance.

*The average costs above were based on MoneySuperMarket customers looking for level term single life insurance only (without critical illness cover), with a total cover amount of £100,000, from October 2019 to September 2020