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

Investing for all:
Top tips to explore the benefits this ISA season

With just a couple of weeks to go until the tax year ends, many investors will be finalising their plans to use up their 2020/21 allowances, including the annual £20,000 ISA allowance.

While there is no one-size-fits-all for investing, an ISA is a tax-efficient and effective way to build a savings pot for the future. If you already have an ISA, you may already experience the benefits, however for those who are still deciding what is best for them, there may be many considerations for you to think about.

Everyone’s reasoning behind an investment is different and can affect the way they invest. Life stage can also have an impact on this, so if you are still considering how to fill your ISA portfolio, here is a guide to how you might approach it at different life stages.

Millennials

Britain’s millennial generation have suffered a bigger reversal in financial fortunes than their Baby Boomer counterparts over the past few years than ever before. *  Money may be tight for the younger generation; however, if you fall into this bracket, you do have the gift of time on your side. Naturally, the longer you save, the more chance your money has to grow, and the more time you have to benefit from the impact of compound interest (generating growth from previous growth).

Longevity in the market could provide a bigger opportunity to invest in cheaper shares; allowing younger investors to ride any market dips out until it rises again. For baby boomers, this is not always an available option.

With time on their side, younger investors may find shares a good place to put away their money, looking into emerging markets and smaller companies. These may come with a higher risk, however, could have the potential for better long-term returns. As your knowledge and experience grows, you can then supplement this approach with actively managed funds.

Stocks & Shares ISAs have seemingly replaced cash savings as the most popular choice, as savings rates continue to be catastrophic. These rates could mean more of us select stocks and shares ISAs this year and it seems this is proving accurate. Under 25- and 25–34-year-olds are subscribing more and more, with a jump of 92.3% investing in the last few years**. This compares to 60% of baby boomers who would feel comfortable to invest. ***

As many as 2.6 million young investors are planning to open a new or additional ISA this year, and another one in 10 of these 18- to 24-year-olds are contributing into an existing ISA, this could be the year of green tax-free investing. A massive 94 per cent of ISA holders under the age of 34 say they already have or would switch their money to an ethical provider, with almost three-quarters of over-35s agreeing with them.****

Mid-Life: 40’s and 50’s

By this stage of life, it is likely that you will still have a fair amount of time until you need to rely on your investments as a main source of income. The older you get, and the closer you come to drawing on your investments, you may consider a conservative move to some multi-asset funds. These funds invest in a mixture of shares, bonds, cash, and property to give a little more protection against falls in the market.

You could also utilise this time to maximise your pension contributions. You may very well be at the highest point of earnings, and therefore more likely to benefit from a greater tax relief on these contributions.

If you pay a higher rate for tax, paying around £800 into your pension could be increased to around £1,000 with the tax relief rate.

Retirement

When you hit retirement, it is important to consider your income and where you will be receiving most of it from. At this stage of life, investing in assets that produce dividends and interest payments could help you to pull in money to support your lifestyle, alongside other sources of income.

Cash savings may not be able to provide you with the income you need to support you during this stage of life, so shares may be a more profitable way to invest. However, the capital and income provided from shares can be varied, so the older generation of investors are encouraged to be wary of the risk. Younger retirees, say at 65 years old, may be able to look forward to living for at least another twenty years, and therefore have enough time to seek out some growth from their investments.

Wherever you may be in life, having an expert of hand to guide you through tricky investment decisions can bring you peace of mind for a stress-free life. Abacus’ independent financial advisers are on hand to help you choose the best investment options for you and your circumstances. Get in touch before the ISA season runs out to maximise your existing accounts, or anytime throughout the year to set out new financial goals.

Source data:

*https://www.theguardian.com/money/2018/feb/19/uk-millennials-second-worst-hit-financially-in-developed-world-says-study

**https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/894771/ISA_Statistics_Release_June_2020.pdf

*** https://www.thisismoney.co.uk/money/diyinvesting/article-8362413/Young-people-likely-start-investing-amid-coronavirus-market-crash.html

****https://www.independent.co.uk/money/isa-cash-stocks-shares-innovative-finance-tax-free-ethical-b1817778.html