Life insurance

Preparing for the unexpected

Life planning is not just about accumulating wealth; it also involves safeguarding the well-being of your loved ones. While contemplating the worst-case scenarios can be difficult, preparing for the future is crucial to ensure your family is protected in the event of your passing.

Selecting the right life insurance policy requires determining the necessary coverage to minimise the financial burden on your family. This amount should consider their living expenses and any outstanding debts, such as a mortgage.

Not everyone may need life insurance (called ‘life cover’ and ‘death cover’). However, if your family or other dependents rely on your income to cover living expenses or mortgage payments, then having life insurance is essential.

Life insurance provides a financial safety net for your loved ones in case of your untimely death. Whether providing security for your family, purchasing a home, or simply enhancing your existing coverage, choosing the appropriate type of insurance is vital.

That’s why obtaining the right professional advice and knowing which products to choose – including the most suitable sum assured, premium, terms and payment provisions – is essential.

Financial protection for your family
We insure our cars, homes, and even our mobile phones – so we should also be insured for our total replacement value to ensure that our loved ones are financially catered for during our premature death.

Life insurance helps protect your family financially. It can pay out a cash sum if you die while covered by the policy. You determine the amount of life cover required and the duration of the coverage, with the option to pay premiums monthly or annually.

Life insurance provides a safety net for your family during challenging times, offering reassurance that they will be financially protected if the worst happens.

As life is unpredictable, obtaining the right life insurance policy is essential. Start by asking yourself three questions: What do I need to protect? How much coverage do I require? How long will I need the coverage? Consider your family’s living costs and outstanding liabilities, such as a mortgage.

Securing your family’s financial future
The right level of life insurance allows your dependents to manage financially in case of your premature death. When you take out life insurance, you set the amount you want the policy to pay out upon your death – this is known as the ‘sum assured.’

Assessing your life insurance regularly is crucial as circumstances change over time. Failing to update your policy in response to significant life events may result in inadequate coverage.

Various stages in life
As you progress through various stages in life, your need for protection will inevitably change. The amount of life insurance you require depends on factors such as your mortgage status, relationship status, and if you have children. It’s essential to consider your circumstances before comparing life insurance policies.

What do I need to protect?
Who are your financial dependents: spouse, registered civil partner, children, siblings, or parents?
What kind of financial support does your family currently have?
What type of financial support will your family need in the future?
What costs must be covered: household bills, living expenses, mortgage payments, education costs, debts or loans, and funeral costs?

There is no universal solution, and the amount and duration of coverage will vary for each individual.

Events that may affect your life insurance needs:
Buying your first home with a partner
Covering loans
Getting married or entering into a registered civil partnership
Starting a family
Becoming a stay-at-home parent
Having more children
Moving to a larger property
Salary increases
Changing your job
Reaching retirement
Relying on someone else for support
Personal guarantee for business loans

Factors affecting life insurance costs
The cost of a life insurance policy depends on several factors, including the coverage amount and policy length, as well as your age, health, lifestyle, and smoking habits.

Replacing income and providing for dependents
If you have dependents, you should have enough protection to pay off your mortgage and other liabilities. After that, consider life insurance to replace a portion of your income. The amount needed will vary, so it’s up to you to decide how much money would allow your family to maintain their current standard of living.

Two basic life insurance types
Term life insurance – the cheapest and simplest form with no investment element, paying a lump sum if you die within a specified period.
Whole-of-life insurance provides coverage throughout your life and pays your dependents a lump sum (usually tax-free) upon death.

Debt relief and financial support
The life insurance you need should ideally provide a lump sum to relieve any debts and leave enough for investment to support your dependents. If you want to cover your mortgage, choose an amount equal to the outstanding debt.

Additional variables to consider:
Family expenses and how they would change if you died
Increase in family expenditure on necessities like childcare if you were to die
Drop in family income if you were to die.
Coverage received from your employer or company pension scheme and its duration
Existing policies and their adequacy in meeting your needs
How long your existing savings would last
State benefits that could provide extra support for your family
The impact of inflation on your coverage over time

Life insurance offers peace of mind and is a crucial component of a comprehensive financial plan.