No one likes to think about a time after they’ve gone, but life insurance could offer reassurance and comfort to you and your loved ones for this situation.
For most of us, life is a series of important milestones that may cause us to think about the future. Inevitably, when we think about our life and beyond, we can’t help but think of what may happen to the people we leave behind. It’s possible that your dependents or next of kin may become financially responsible for any of your outstanding debts or expenses like childcare costs, a mortgage or even funeral, medical or care costs.
Even if you have been careful with your finances and have no outstanding debts, you may simply wish to leave a legacy to your loved ones, help to contribute to the future cost of living for any dependents or give a small sum to help cover the cost of your funeral.
Whether you wish to leave £5,000 or £500,000, making this provision early can offer you peace of mind.
Do I need life insurance?
One way to determine whether or not you need life insurance is to consider what your financial obligations and contributions are and what the impact of this would be on your loved ones if you were no longer around. If your outgoings are not mitigated by a death in service policy through your employer, saleable assets or an income, investment, savings or pension plan then you may want to consider a life insurance policy.
You may have only just taken out a mortgage, meaning you have a lengthy financial obligation to fulfil. If you have children, you might have elected to send them to a fee-paying school, or be paying for innumerable after school clubs or activities. Your funeral is also likely to be a costly event, even if modestly done.
As well as the essentials there are a surprising number of expenses like the cost of running a home, other insurance policies and raising a child to maturity, which contribute to the cost of living and that you may overlook. If you find that you have little-to-no provision for your loved ones after you die, then life insurance might become a serious consideration.
Why do people buy life insurance?
Here are a few of the main reasons that people choose to buy life insurance:
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Buying a new home
If you die before your mortgage is repaid, then the responsibility to complete payments may fall to someone you love. Mortgage life insurance enables you to be proactive about ensuring those you care for can meet those financial commitments after you’ve gone.
Decreasing term life insurance is a type of cover that helps if you have a repayment mortgage or other sizeable reducing debt. The longer your cover is in place, the less is paid out. This is because your debts are also decreasing, and the insurance is there to help cover these payments. The monthly premiums for this type of policy may also be lower.
If you have an interest-only mortgage, you might be more interested in level term life insurance. This is where payouts are fixed and the policy is in place for a pre-determined amount of time. The advantage of this kind of cover is that your family’s payout would be the same whether you died a year into your policy or a year before it expired.
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Just married
If you’ve recently become engaged or married and are joining families and assets, it can make life easier to know you are both covered if one of you were to die. Life insurance enables you to make financial contributions to your partner’s well-being after you’ve departed – which is a beautiful way to honour your marriage vows.
The type of policy that you take out could be single – ie only covering you – or joint. A joint policy is usually cheaper than purchasing two single policies as it will pay out once on first death. The surviving partner would need to take out their own individual policy.
Two single policies can pay out upon the deaths of each policy holder and can take away the complexity in the unfortunate circumstance that the relationship comes to an end.
There are pros and cons to both types of policy, but it's important to know that if a relationship breaks down, an insurance provider may not be able to divide a joint life policy into two single policies. Also if you claim on a joint policy and choose to apply for a single policy later in life, it can be expensive because premiums increase with age.
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Having a baby
The cost of raising a child is expensive, even before factoring in considerations like private education and university contributions. There are policies available that run until your child reaches maturity – and after they’re 18, it’s up to you what “maturity” means.
Providing for your child to protect them against the unexpected is a way to give yourself peace of mind and enjoy the present with them more fully.
Level and increasing cover term insurance are policies which pay out lump sums if you die within the agreed term. If you wish to leave a sum of money to your kids rather than pay off debts, you may want to consider an increasing or level term policy.
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Planning for a funeral
The cost of funerals can run into thousands of pounds. Over 50s life cover could help pay off this cost. Contributions for this type of life cover tend to be smaller than others as the payout is significantly lower.
Over 50s life cover differs from term life insurance in that there is no fixed length to the policy; the cover lasts your whole life and pays out upon your death, as long as you've kept the policy in force by keeping up with the monthly premiums. With some insurers, the premium payments last your whole life; with others there's a fixed payment term. With Post Office Over 50s Life Cover, for example, the payment term is until the policy anniversary on or after your 95th birthday (or until death if sooner). Also, our Protected Benefit feature means that if you stop paying your monthly premiums early, we will still pay-out at least half of the cover amount on your death (as long as you're at least halfway through the payment term). Read the policy terms and conditions for full details.
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Inheritance tax
Another reason people may decide they need life insurance is inheritance tax. Inheritance tax has become a bit of a bogey man for those intending to leave money for their children once they die. Bills can run into tens of thousands of pounds, which can make a significant dent in your children’s inheritance. However, if you were to buy a life insurance policy that covered the tax bill, they could enjoy everything you intended them to receive.
Some people choose to put their insurance policy into a trust.
Trusts come with important legal implications, and should only be entered into after thorough discussion with an impartial legal or financial consultant. Once you have placed your policy in trust, it is very difficult to undo this, so being certain of what you are doing beforehand is crucial. There are several kinds of trust available, so it is also important to think long-term about how you want your money to be handled when considering this path.
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The next generation
Getting older is a fact of life, and has a tendency to make us reflect. If you are at such a point in your life – whether due to age, ill-health or any of the above reasons – then the financial security of the next generation will be on your mind. Life insurance helps you put these worries to rest and focus on enjoying the future.
Read our articles on whether life insurance is worth it and what to expect when applying for life insurance for more information.
