Table of Contents
What is life insurance?
Life insurance is designed to pay out a cash lump sum upon death of the person insured It is also called term assurance so what this means is a person is insured for a particular length of time i.e. 30 years and if the person dies within that term a long as the premiums have been paid and are up to date then the policy will pay a cash lump sum.
Many people set this up to run alongside a mortgage or loan
You can even set up a life insurance policy if you do not have a mortgage because the money is paid to the surviving spouse or the estate and the money does not go direct to a mortgage lender.
Why set up life insurance?
If you are a single parent with a child, it is important to protect yourself because think about this……
What would happen to your child if you passed away? Maybe go into care. Have no money for rent or to buy a property or have any money to buy food and pay for bills etc.
Just think about it…
I ask people how much they spend on a night out with friends or a meal out with their family. Let’s say you have a three person family. You go for a meal out one night and spend £75, why would you not spend the same or more on your life assurance to make sure your family are cared for?
It’s always best to have a budget in mind of how much you would be prepared to pay for your cover. This way if we come in under budget then you are laughing. If you cannot afford the full premium we can tailor your cover to the budget you have.
Joint life insurance policies
If you are a in a relationship or married and you both need life insurance, then most people take a joint life assurance policy. When one person dies the survivor gets the money to repay a mortgage and the policy pays out only once then stops.
When the second person dies the family do not get any more money, therefore, if there is an Inheritance Tax (IHT) bill (this is a tax your family have to pay if your estate i.e. property, savings and investments are valued over £325,000 (correct at March 2017). If your estate is worth more than £325000 then the family need to find the money to pay 40% of any value over the £325000 mark. They would have to pay this BEFORE the family can sell the property. In my opinion, it would be much better to have two separate insurance policies written in trust. This does normally cost a few pounds more per month, but the benefits are clear to see. Let’s make this a little clearer it normally is more expensive to taketwo insurances policies rather than just one, but writing the policies in trust does not actually cost any more money so why would you not utilise this?
- If people are insured separately then you could potentially have two pay outs (one for each person).
- If your policy is joint, the policy only pays out on one event and then stops. The second person in this instance would cease to be covered.
- You cannot write a joint life assurance policy in trust
- You can write single policies in trust
- Insurers do not charge money to put the policy in trust.
- The trust is only 6 to 10 pages long
- When money is held in trust it does not form part of your estate therefore is not subject to any Inheritance Tax Liability
This is the reason why advisers are worth their weight in gold because they could potentially save you and your family thousands of pounds.
For more information on this please contact us to discuss further
Some people may argue that life assurance never pays out because the insurance companies always try to get out of paying you. This is a poor argument given the fact that most insurance companies pay out over 90% of claims every year. So why would you not?
As long as:
1.The premiums have been made,
2. The policy is still live,
3.set up correctly and
4. you have disclosed all relevant facts about your health you will be covered.
This is the same with ALL insurances. If you do not disclose all relevant facts and answer the questions truthfully then your policy will be null and void. Simple really.
Life Insurance Q&As
If you are looking to give your family a cash lump sum so they can pay off an Interest Only mortgage, continue to live and pay bills, send your child or children to private school, or for Inheritance Tax Liabilities then generally a Level Term Assurance maybe best. If, however you have a repayment mortgage you may opt for a “Decreasing Term Assurance” which pays a cash lump sum. A decreasing policy is designed to decrease in line with your mortgage providing your interest rate on your mortgage does not increase above a certain percentage, typically 8% or 10% depending on the policy you have chosen.
There are many types of life insurance so why not speak to one of our experts to get the right insurance policy for you
The things that affect the cost of your premiums are, your age, if you are a smoker or non-smoker or what extra options you choose for the policy such as critical illness cover or waiver of premium.