Life Insurance comes in many forms
Life Insurance comes in many forms and can help in different areas of every-day life such as to cover the following:
- Children or any other dependents
- Debts (loans, car finance etc.)
- A business
- Potential Inheritance Tax Liability
Here are some examples of how Life insurance can help you:
Free Parent Life Cover
Aviva are offering each parent £15,000 free life insurance as a first step towards protecting your family with no other purchase necessary. You don’t even need to supply payment details.
You can take out the plan while your child is below 4; once activated the cover remains in place for 12 months. If you die within this 12 month period the cover pays out £15,000.
Critical Illness cover
Critical Illness cover is a form of insurance plan which pays out a tax-free lump sum in the event of you being diagnosed with a specified illness or disability during the term of the plan. Typically the term will run in line with your retirement age, mortgage or any other financial obligation.
Critical Illness cover can help pay off any outstanding debts, pay for medical treatment and aid you in making adjustments to your home that may be required. Additionally, most insurers will offer a children’s benefit at no additional cost where if your child is diagnosed with a critical illness then they too may claim under your policy; although in most cases the pay-out is limited to a percentage of the total cover.
Decreasing/Level Term Insurance
Decreasing term insurance is often acquired to cover a mortgage so the length of cover usually reflects the term of your mortgage
The policy will decrease in line with your mortgage and ensures that the full outstanding sum if paid off if the worst were to happen.
It is important to take onboard that note that decreasing in term insurance policy is not appropriate for someone with an interest-only mortgage, where the capital debt is only repaid at the end of the mortgage term
A level term plan is more commonly used to provide a fixed level of family protection- sometimes in excess of just covering a mortgage. Unless you choose from the outset to have the sum insured to increase in line with inflation, the amount paid out remains constant throughout the term of the plan.
A financial adviser can help you identify a suitable amount of cover required for your specific circumstances- a balance between sum assured and cost needs to be found in order to find a cost-effective policy for your needs.
Life Insurance isn’t always a lump sum payout..
A form of life cover called Family Income Benefit will pay out an annual Income to your family instead of a lump sum. This may be attractive as it ensures normal continuity in family finances and can be easier to manage. This type of cover can also work out to be cheaper than traditional life insurance.
Over 50s life insurance
If you’re over the age of 50 you may have already paid off your mortgage and have no financial dependants and so your needs may have changed. Rather than cover debt you may want leave money to cover funeral expenses or simply leave a departing gift to a younger generation.
An over 50s plan has the benefit of guaranteed acceptance (no medical underwriting) and allows you to tailor the monthly premium in line with your budget. There are many different providers and plans available on the market; each with their own benefits. It is therefore crucial to obtain Financial Advice to ensure the correct policy is chosen and to avoid any nasty surprises.
Some companies offer a death in service package which will pay the family of an employee a lump sum if the employee dies whilst they are employed by the company. This type of payout could potentially put you over the pension lifetime allowance and attract a substantial tax charge so speaking to a Financial Adviser is highly recommended if your company offers such benefits.
It is worth bearing these benefits in mind when you have to consider life insurance. Generally speaking, death-in-service payments are usually set to three or four years’ salary and may not provide all the cover and your family may require. Also this cover may end as soon as you leave the company.
How life Insurance can help you and your loved ones:
Help with inheritance tax
Another very useful feature of life insurance is that it can be used to cover potential inheritance tax liabilities. A life cover policy to cover the likely IHT liability can ensure that more of your wealth is passed on to your loved ones.
Help pay off mortgages
Life insurance can help pay off mortgages for those with families so they are not forced to move out or left with large repayments.
Help leave something for your Grandchildren
Life insurance is also another way of being able to leave something for the future to help your grandchildren such as tax free lump sum.
Help with Children or dependants
If you have a family a life insurance policy may be the financial cushion required if you were to die and be the sole earner in the family. A lumpsum pay-out could help at this critical time and give you the time off work needed to readjust.
Help cover funeral expenses
A Lumpsum payout can also help cover the all-important funeral expenses. The average cost of a funeral is £4,136.
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Life Insurance comes in many forms was published on 3 July 2017