Whether you’re in your 20s or your 60s, taking out a life insurance policy is a sensible move, especially if you have children or family members that rely on you financially. Though nobody wants to think about dying, the truth is that you’re not going to live forever, so life insurance can give you peace of mind and ensure your loved ones will be covered after you’ve gone.
Life insurance policies can cover things like your mortgage, children’s school fees and even pay off debts. It’s thought that around 30% of the UK population has a life insurance policy or around 20 million people. Below, we’ve outlined some of the most popular reasons why…
Source – @jessicarockowitz
Gives you peace of mind
Perhaps the most obvious benefit to a life insurance policy is offering peace of mind. Though it can be hard to think about life for your loved ones without you around, life insurance will at least reassure you that, if you were to die, they’d be looked after. It can also offer a partner or spouse some reassurance, too, especially if you’re the main breadwinner. They can relax knowing, if the worst was to happen, they wouldn’t be left homeless or penniless overnight.
You might decide to take out a minimal life insurance policy to cover things like mortgage payments or opt for a larger pay out that would see your kids through university. Naturally, the bigger the policy, the higher your monthly premiums, so weigh up the pros and cons.
Although nothing can prepare someone for losing a parent, partner, or relative, life insurance will at least ensure that they don’t have the additional financial burden to think about when they are grieving. Without a life insurance policy, your partner and children might be faced with selling up the family home and downsizing to reduce costs, which would only add to the grieving and make life all the more difficult. With the right insurance policy, you can help to minimise the disruption caused by your death and give them one less thing to worry about.
Before taking out a life insurance policy, it’s worth reviewing your expenditure and debts so that you take out enough to cover what your loved ones will need. Giving your family some much-needed financial security can make their lives easier and allow them to process the loss of their loved one.
If your estate is worth more than £325,000, your loved ones might have to pay inheritance tax on the amount they receive within six months of your death. If that tax is not paid within the initial time frame, HMRC will add interest to any amount due, which can be very stressful, especially for those who don’t have savings or immediate funds ready to pay an IHT bill. Life insurance can free up cash to cover inheritance tax bills so that your family won’t have to sell up or dispose of assets. Calculate what they might pay and regularly review this over the years – as your estate grows, your life insurance should too.
Could cover funeral expenses
According to SunLife, the average funeral costs £4,056 in the United Kingdom as of 2021, but once you add in professional fees and send-off costs, that figure can climb to £8,000. With life insurance, your loved ones can cover cremation or burial costs without having the headache of a large funeral bill during a difficult time.
More financial concerns
Let’s face it: modern life can be expensive. Not only do you have to think about the basics like rent and mortgage payments, but you also have to consider council tax, utility bills, your phone line, TV licence, broadband, and subscriptions. That’s without taking into account car finance and other financial obligations like your children’s education and accommodation. We all commit to these purchases because we don’t expect to die, but if we do, our loved ones could have these added financial burdens to worry about. The right life insurance policy should allow you to live life the way you want to, without thinking about the “what ifs”.
Your savings aren’t enough
According to a report from Cybercrew, the average Brit had £6,757 in savings in 2020, but the average UK mortgage debt in 2021 was £137,934. Unless you’re a prolific saver with tens or even hundreds of thousands of pounds in the bank, the chances are that you won’t be able to mitigate the financial impact of your death. Life insurance is a more affordable and straightforward way to give your loved ones the protection they need and frees up your savings for making the most of life today. Life insurance means you can enjoy that holiday, invest or grow your business without having to worry about the future.
Critical illness cover could help
Although life insurance and critical illness cover are two separate insurance policies, many life insurance providers offer critical illness as an add-on. It’s designed to pay out immediately if you receive a critical illness diagnosis such as cancer, which could prevent you from working. Most policies pay out a tax-free lump sum that can be used to however you like and ultimately enjoy your time with your loved ones as best you can.
There are a number of life insurance policies that you should consider before finding the right one for your needs. One of the most common is Decreasing Term Life Cover, which does what it says on the tin – as you get older, your potential pay out will decrease. This is designed to work in tandem with any mortgages, debts, and financial responsibilities you have: the idea is that, as you get older, you’ll continue to reduce your debt and thus need a smaller life insurance pay out to cover any costs when you’re no longer around. As a result, Decreasing Term Life Cover can prove to be one of the most affordable insurance options.
Something else to consider is Level Term Life Cover, which will give your loved ones a cash lump sum should you die within the lifetime of the policy. This can be used to repay your mortgage or as a way of helping your dependants continue to live life comfortably. Increasing Term Life Cover, on the other hand, will see your premiums rise every year, but the pay out climb at a similar pace to cover the cost of rising inflation and ensure that the value you’re covered for is the same when you die as it was when you started the life insurance policy.
Over 50s Life Cover is a popular choice for those who want to be able to contribute to their own funeral. Although these policies are generally more expensive and offer less cover than Decreasing and Level Term Cover, they allow you to stay in control of your finances and give back to your loved ones, making their lives easier when you pass.
Because we play by the book we want to tell you that...
1. We understand equity release isn’t for everyone, and we’ll never say it’s the right option for you, that’s why we pass you onto an Expert.
2. A lifetime mortgage is a loan secured against your property. With a lifetime mortgage there are typically no monthly repayments to make as the loan, plus roll up interest, is repaid when the plan comes to an end. Usually, that’s when you, or the last remaining applicant, either passes away or moves into long-term care.
3. With a lifetime mortgage you’ll still retain full ownership of your home.
4. Equity release will reduce the value of your estate and may affect your entitlement to means tested benefits.
5. Mortgage Advice Bureau Later Life offer lifetime mortgage products from a carefully selected panel of providers.
6. Unless you decide to go ahead, Mortgage Advice Bureau Later Life’s service is completely free of charge as their fixed advice fee of £1,295 would only be payable in completion of a plan.
7. ClearKey is an independent marketing website which only acts as an introducer to companies who offer advice on various financial plans, products and services.
8. Our partners are authorised and regulated by the Financial Conduct Authority.
9. ClearKey.co.uk are not authorised to give any advice and we are not liable for any financial advice provided by or obtained through a third party.
10. Life insurance products attract terms and conditions. Price information contained within this website are for illustration purposes only. You will receive a full policy document upon application which will set out the terms, conditions and limitations of cover provided under the plan.
11. Your home may be at risk if you do not keep up repayments. Think carefully about securing debt against your home. When consolidating existing borrowing be aware that extending the term could increase the amount repaid.