Many people decide against taking out life insurance because they don’t see the value in it. However, before dismissing life insurance as a waste of money, it’s worth considering the impact this could have on your family. Life insurance can provide your family with the financial support they need in the event of your death, while also giving them time to grieve. For a modest payment each month, you will transfer liability for your family’s future financial security to a trusted third party – it’s a small price to pay for something so important. At CSP Wealth, we will take a close look at your lifestyle, goals and needs, and recommend the policies that offer the right kind of cover to suit your circumstances and stage in life.
How do you work out how much life insurance I need?
This will vary from person to person but, based on your expenditure, we can work out whether you have a shortfall in the value of your assets – your investments, pensions, trusts, savings, etc., and the income arising from them – to provide for your family and maintain their lifestyle in the manner to which they are accustomed upon your death. If you do have a shortfall, we can work out how we can transfer liability for it to a life insurance company, and investigate the cost of premiums and the cover available. As independent financial advisers, we have access to the whole of the market and will recommend the best-suited policy to cover your circumstances.
Can life insurance help with inheritance tax?
The simple answer is yes. It is imperative that you seek expert advice on how to set this up properly as it easy to do this incorrectly and actually add to the IMT burden. A life policy, in trust, can also provide tax free money that avoids the probate.
What types of life insurance are available?
There are two main types of life insurance: Term insurance – this can be set for a certain timeframe and will pay out a lump sum or a monthly income if you die within this period. If you don’t die, the policy will lapse, and you will get nothing back. It was simply a way to pay for peace of mind within that time period. We hope and pray every policy like this is a waste of money, the alternative is you’ve died!
Term insurance can be subdivided into five different types:
- Level term insurance – pays out a set lump sum if you die during the term.
- Increasing term insurance – pays out an increasing sum per year, to reflect inflation.
- Decreasing term insurance – covers a debt that decreases over time, such as a mortgage.
- Convertible term insurance – allows the option to convert to a whole-of-life policy.
- Renewable term insurance – allows you to renew cover when term finishes without a health review.
- Whole-of-life assurance – this offers protection for the duration of your life from when the policy starts until your eventual death. Because of this possibly longer, unpredictable time period, premiums are much higher, but there is a guaranteed payout to help your family and loved ones cover the costs of your death and gain support after you are gone.
There is 2 primary types of whole life cover:
- Reviewable premium policy – pays out a lump sum on death, but the premium and sum assured are reviewed at set time periods. Typically these start off a relatively inexpensive and the cost rises over time.
- Guaranteed premium policy – the policy pays out a lump sum on death, however the premium and sum assured are set at the outset of the policy and are guaranteed not to change over the rest of your life.
The right type of life insurance for you will depend entirely on your individual circumstances, and you are advised to get expert advice on which cover will be right for you.
If I have a few health conditions, will it be worth it?
The answer to this goes back to ensuring you are aware of any shortfalls in your financial planning and making sure you are prepared in the case of an unfortunate eventuality. It’s up to you to make the necessary plans within your power to support your family, and it is not our place to tell you whether you are too old or infirm. Again, much depends on your family’s individual circumstances.
FOCUS ON YOU