Do you have a life insurance policy in place? Here are some reasons why you should
Life is unpredictable.
Being the polite nation that we are, though, just thinking about the unexpected or the inevitable is bad enough — heaven forbid we’d talk about it.
Staggeringly, less than a third of people in the UK have life insurance. Meaning millions of us could be leaving behind a headache, and heartache, for our loved ones by failing to talk about the “what ifs”.
Putting some protection in place, therefore, is incredibly important. It should form a part of your wider financial plan to make sure those you love are taken care of when the time comes.
So, if you haven’t got a life insurance policy in place yet, or you don’t really see the point, here are just some reasons why you might want to reconsider.
You’re married or have a partner
If you have a significant other who you want to financially provide for in the event of your death, life insurance is a must.
Regardless of whether your partner is still earning or not, the loss of your income will still be a blow. And it some cases, it could be a substantial one. Taking out a life insurance policy and naming them as the beneficiary will give you peace of mind that they’ll be looked after.
Single cover is still the most popular type of life insurance policy, as opposed to a joint policy with a partner, with 59.22% of those insured on single cover.
If you’re in a couple, two single policies could give you the flexibility to cover the higher earner for more, for example, as the loss of their income would be a bigger blow.
You should talk through your options with a provider if you’re unsure what’s best for you — every situation is unique and there’s no one size fits all option.
You have children
For the same reasons as above, if you have any children or dependants that you want to take care of after you’ve gone, especially those under 18, life insurance should be a priority in your broader financial planning to ensure they aren’t left to fend for themselves.
While we’re heading down this (gloomy, but very important!) path, it’s worth mentioning that making a will should go hand in hand with your protection planning. If you’re a parent and you haven’t named a legal guardian for your children in a will, they’ll be left in the care of the person the state chooses, not you.
However difficult thinking and talking about what happens when you’re gone may be, you can bet it’ll be much worse for those left behind if you’ve failed to protect them financially.
You’ve got a mortgage
If you’ve taken out a mortgage on a property and the worst happens, the payments will ultimately become the responsibility of those closest to you. A life insurance policy can prevent this from happening.
With the right protection, any standing payments can be covered through your insurance, and your dependents won’t lose the property — which could be the family home.
You might be liable for inheritance tax
When the time comes, you’ll be able to pass on an estate worth up to £325,000 (£650,000 for married couples) free from inheritance tax. Anything over this and your dependents will be hit by a 40% tax charge.
There’s also an additional allowance of £150,000 (for 2019/20) that can be passed on free from IHT as long as part of your estate is the family home.
Unless you’ve put provisions in place to limit your IHT liability, your loved ones could be in line to receive a not-so-attractive bill from the tax man. One way of avoiding this is through a comprehensive life insurance policy that will cover the tax charges and allow them to keep more of their inheritance.
Life insurance can be used in many ways to protect both your family and your assets. It can even be used to cover the cost of your own funeral plans (typically £4,078 — which many people don’t often consider!).
If you want to leave your beneficiaries with as little to worry about as possible, in more ways than financially, maybe it’s time to rip off the plaster and kick-start your protection planning.
As with many aspects of your financial planning, it’s never too early, but it could be too late…