5 Tips for Taking Out Life Cover and Securing Your Family’s Financial Future

I am often surprised when working with new clients as to how little life cover they have especially taking into account their assets and liabilities, their income and expenditure and their family situation.

Researching some statistics for the UK as a whole, perhaps I shouldn’t be that surprised:

A recent report by Money Supermarket suggested that more than a third of parents in the UK don’t have any form of life insurance.
According to Statistica, in the UK, the partners of about 500 women and 75 men under the age of 50 die every day leaving around 100 children without one parent.

Life Insurance is one of the most cost effective ways to provide for your family in the event of your death so I thought I would share with you five things you should take into account when considering life cover.

#1 – Buying Life Cover When Younger is Cheaper.

This is pretty obvious but generally speaking younger people are healthier than older people. Having said that, life cover can be pretty cheap for most people. I have set out below the premiums for a Level Term Assurance policy for a non-smoker, over 20 years with a sum assured of £100,000. In other words, this policy will pay out a lump sum of £100,000 in the event of death within the next 20 years.

Monthly premium for a 20 year old - £2.51
Monthly premium for a 30 year old - £3.44
Monthly premium for a 40 year old - £5.65
Monthly premium for a 50 year old - £11.87
Monthly premium for a 60 year old - £34.23

The premiums assume that cover is on standard terms but, as you can see, premiums are relatively cheap in return for the peace of mind that your family is protected. Premiums correct as at 2nd March 2023.

#2 – Assess the Amount of Cover You Need.

When taking out life cover, it is important to select the right amount of cover. As part of our financial planning service, our sophisticated cashflow software will calculate how much life cover is required for your family to remain financially comfortable.

In general terms, you should take into account:

Your mortgage.
Any outstanding debts.
Household bills.
Childcare costs.
Daily living costs.

It can be quite difficult to select the most appropriate level of cover and you may want to consider taking advice in this area. Obviously, the premiums need to be affordable.

#3 - Write the Policy in Trust

Again, it is surprising how may life policies are not written in trust. By writing your policy in trust, it separates the policy from your estate so that the sum assured doesn’t form part of your estate. It also means that the benefits can be paid out straight away without having to wait for probate.

#4 – Consider the Most Appropriate Policy

There are different types of Life Cover that can be appropriate depending on your circumstances:

Level Term Assurance - Provides a lump sum for your beneficiaries in the event of your death over a specified term. You can choose the sum assured and the policy term, which is guaranteed at the outset and remains unchanged throughout the term.

Decreasing Term Assurance - Provides a lump sum in the event of your death to cover a reducing liability for a fixed period, such as a repayment mortgage.

Whole of Life - Provides a guaranteed lump sum paid to your estate in the event of your death. To avoid inheritance tax and probate delays, policies should be set up under an appropriate trust

Family Income Benefit - Provides a replacement income for beneficiaries on your premature death. In the event of a claim, income can be paid monthly, quarterly or annually, and under current rules the income is tax-free.

Other types of policies to consider may include:

Critical Illness - Insurance that provides a percentage of your lost income caused by an illness, accident or disability. Rates vary according to your occupation, age, state of health and gender.

Income Protection - Insurance that provides a percentage of your lost income caused by an illness, accident or disability. Rates vary according to your occupation, age, state of health and gender.

#5 – Regularly Review Your Policies

As we go through life so our circumstances change and we often find that the level of cover we had earlier in our lives might no longer be appropriate. It is worth checking the level of cover you have in place especially when the following life events occur:

Buying your first home with a partner.
Having other debts and dependents.
Getting married or entering into a civil partnership.
Starting a family.
Becoming a stay-at-home parent.
Having more children.
Moving to a bigger property.
Getting divorced.
Salary increases.
Changing job – does the new company offer the same benefits as before?
Reaching retirement – for example no longer covered under a Death in Service Scheme.

Many insurance companies will allow you to make changes to an existing policy which might be more cost-effective than taking out a brand new policy.

Summary

Having the right life cover in place is so important to provide peace of mind to you and your family and it is something that often gets overlooked in our busy lives.

If you would like to discuss your life cover needs or any other aspects of your financial planning, do get in touch with us using the button below.