Do you have enough life insurance? When was the last time you had a life insurance review? Perhaps the only time you’ve ever considered life insurance was when you took out your mortgage. While mortgage life insurance is a very sensible choice that will cover the value of your mortgage if you pass away, there are so many other factors to take into account.

Here’s a surprising statistic: 61% percent of dogs in the UK are insured while only 30% of humans have life insurance. As a nation, we’re good at insuring our cherished animal friends, but often overlook the importance of life insurance for ourselves and our families.

In this article, we’ll explore the importance of different life insurance coverage, how to work out if you have enough, and how you can arrange a life insurance review for your peace of mind.

Do I Need Life Insurance?

Life can be unpredictable. Life insurance is designed to counter this unpredictability and protect and secure your family should the unexpected happen. From paying off the remaining balance of your mortgage to covering other debts and expenses, life insurance can be tailored to suit your needs.

If you’re questioning whether you need life insurance, here are a few questions to ask yourself:

• Is there anybody in my life that relies on my income?
• Do I have a mortgage or other large debts that will become the responsibility of my loved ones?
• Could my loved ones afford to pay for my funeral?
• Would I like to leave a gift to the people I care about?

When Mortgage Cover Alone Isn’t Enough

Many homeowners consider their home to be their family’s biggest asset, when often it’s actually them! Think about how much your income covers during a typical month and what would happen if your family no longer received this money. From the mortgage and energy bills to council tax and shopping costs, all of these things would need to be paid for if you were no longer around. That’s why we recommend looking beyond just your mortgage when arranging cover. Let’s take a look at some other areas you might consider when taking out life insurance.

Firstly, a Quick Note About Mortgage Life Insurance…

When you take out mortgage life insurance, it’s sensible to set the cover to match the value of your mortgage. This will ensure your mortgage value is covered in the event of your death and also ensures you don’t take out more mortgage life cover than you need. If you have an interest-only mortgage that you want to arrange cover for, bear in mind that interest rates and inflation will fluctuate during the term of your mortgage. Make sure you take this into account when calculating how much cover you need.

Covering Loans and Other Debts

If you have secured loans, credit cards, or other debts outstanding when you pass away, the cost of these loans would usually be taken out of your estate after you are gone. That means your family will be left with less money to live on. Life insurance is typically not counted as part of your estate and when written in trust (more on this in a moment), can bypass probate so that loans and other debts don’t affect it.

Covering Family Expenses

If you want to provide for those big life milestones in your children’s lives, your life insurance payout could help them to cover the cost of buying a house, attending university, or starting a family. The cost of these milestones may increase over the years. Look for life insurance policies that retain their value over time, such as a level-term policy or index-linked policy.

Covering Funeral Costs

The average cost of a funeral today is around £4,184. That could be a big expense for your family. For this reason, it might be sensible to leave a sum to help your loved ones cover the cost of your funeral. A level-term insurance policy would be the best choice in this instance as the final payout will remain the same throughout the policy term. This gives you and your family peace of mind that your funeral costs will be covered.

Critical Illness Cover

If your family depends on your income, consider taking out a combined life and critical illness insurance policy. This will pay out if you are diagnosed with a critical illness during the term of your policy.

Example Costings and Payout Amounts

Below is an example of a level-term insurance policy that can be taken out in addition to your mortgage life cover. As you can see, the sum assured stays the same throughout the term of the policy.

All life insurance applications will be medically underwritten and monthly premiums will be subject to change depending on health and lifestyle. The above monthly premiums assume standard terms and were correct as at 24th April 2023.

Putting Your Life Insurance in Trust

When you take out a life insurance policy, it’s important to consider what will happen to the money when it is paid out. How soon will it be paid out? Who will receive it? Will it be taxed?

One way to control what happens to your life insurance payout is to write your life insurance into trust.

A trust is a legal arrangement that ensures your life insurance policy is kept separate from the rest of your estate. It offers several benefits, including:

• Faster Payout: If your life insurance policy is placed in trust, you won’t have to go through probate before the money is paid out. This is particularly important if your family would be in financial trouble from the moment you pass away.
• No Inheritance Tax: When you put your life insurance into trust, it won’t be subject to inheritance tax as it isn’t considered to be part of your estate.
• Can’t Be Used to Pay Debts: Because your life insurance isn’t considered part of your estate, it cannot be claimed by debtors looking to recover debts.
• Choose Where the Money Goes: Depending on how you set up your trust, you can decide who receives the life insurance payout.

Arrange a Life Insurance Review Today

At Alextra, we recommend that you review your life insurance cover every few years as your circumstances change. We’d be delighted to take you through a life insurance review to ensure your family has everything they need should the unexpected happen. Speak to our team today to get started.

Call us on 01270 250800, use our contact form or email planningteam@alextragroup.co.uk

Sources

https://www.pdsa.org.uk/media/12965/pdsa-paw-report-2022.pdf

https://yulife.com/blog/how-many-people-have-life-insurance-in-the-uk/

https://www.which.co.uk/money/wills-and-probate/end-of-life/funeral-costs-aDPu97f1OM5G