Setting up life insurance is one of those things we mean to get around to doing, but never seem to manage it. So, have you got things covered?
Life insurance is a way to provide for your family when you’re no longer around to look after them. It is a way of ensuring your dependents receive either a lump sum or a regular income if you die.
None of us like to think about dying, but it’s something you need to consider if your family depends on your wages to cover the costs of day to day living expenses, such as the mortgage, child care and other household bills. An untimely death if you’re uninsured could leave them struggling to make ends meet.
There are two types of policy:
- term life assurance which runs for a fixed period of time and will only pay out as long as the policy is still running
- whole of life cover which will pay out whenever you die as long as you keep making the payments. However, this can be the more expensive of the two.
So who needs it?
Life insurance is not for everyone, but if you fall into any of the categories below you should consider taking out a policy.
Young children or other dependents
Protecting your family, especially young children, is important. If your spouse relies on your income to take care of your children and pay for necessities like child care costs and school fees, you need to consider how they would cope without it.
You have joint debts
What happens to your mortgage or if your partner or parents have co-signed for any loans you have taken out? A life insurance policy will make sure they’re not stuck with big bills to pay when you are gone.
If you have a high net worth
Life insurance is often recommended as an estate planning tool so if you die your surviving family can pay any costs on your estate without having to sell any of your assets. This is because any assets in your estate that are worth over £325,000 could be subject to 40% inheritance tax, this includes any properties, savings and personal items. A life insurance policy to cover the cost of inheritance tax could allow you to ensure that your full legacy is kept within your family.
You want to pay for your funeral
The average funeral now costs £7,500. Apart from the cost of the burial or cremation at £3,400, a memorial, flowers and catering can add another £2,000. Discretionary estate administration costs account for another £2,100.
Not for everyone
However, life insurance is not necessarily for everyone.
You probably don’t need it if you’re single and have no dependents because there’s no-one else depending on your income. In these circumstances, critical illness cover or Accident, Sickness and Unemployment cover maybe more suitable.
Similarly, if you’re debt free or don’t have any co-signers then there’s no need to pay out for a policy unless you want to leave a nest egg behind for loved ones.