In many of my previous articles, you will have seen that I have regularly made reference to the term’s “flexibility” and “choices”. Both words have meaning during the course of your lifetime, especially in in terms of how financial advisors use those words to relate to you.
Financial advice/planning is often associated with investments and pensions however there are many facets to financial planning, one of which is protection. Protection, in turn, also has many different components such as life protection, critical illness and income protection to name a few. Today I will give you an overview of life protection.
Life insurance will pay a pre-agreed lump sum to a specified beneficiary(ies) on death or terminal diagnosis of the policy holder.
Life insurance can have a variety of uses however it is primarily considered as a product that is there to help protect your family from financial hardship should something happen to you (policy holder).
Most people know what life insurance is but aren’t sure why they may need a policy and how much cover would suffice.
If you want to help ensure your family is going to have income and be in a position to repay any debts, or support children through education for example, then life insurance may be very important.
Here’s why it matters.
Provide for lost income
One of the primary reasons people get life insurance is to help ensure their loved ones won’t face financial hardships if they pass away unexpectedly. If you’re married and have kids, this can matter a lot, especially if you’re the primary income earner for your household. Without your income, your family might not be able to afford your mortgage or cover the costs of education (private school/university) etc. Your life insurance death benefit can help pay for these.
If you are the lower income earner in the household, and support the main income earner by providing additional care for your children, then you are equally as important to the functioning of your household. If you were to pass away, the surviving spouse would have to either modify their current working patterns, possibly resulting in a loss of income and or mate alternative arranging for the care of the family.
You don’t have to be married either. If you have a partner you share finances with, for example, the mortgage, household bills or loans, they may not have the ability to cover the bills that you normally split.
Help cover bills and debts
As in the above section, the same is true for servicing household bills and other types of debt. If you pass away with credit card debt or a car loan, for example, then that debt doesn’t disappear — someone will have to pay for it. In many cases, that could be your spouse or partner, and, if you are single, your parents or siblings. Having life insurance can help cover these payments so the costs aren’t left to your loved ones.
Your life insurance policy can also help pay for your funeral service and burial. This can help alleviate the burden your loved ones might face whilst going through the difficult process of grieving.
When a loved one passes away, it’s always an emotional and stressful time. The impact on the surviving spouse, children and other family members can me immeasurable. This already difficult period can be more challenging if there are concerns about replacing income and covering income/bills referenced in the previous sections.
Life insurance can’t bring loved ones back, however it is a key component in ensuring that loved are left with the financial support that they may need in order to be able to continue life without suffering from the financial impact of the loss of a loved one.
Knowing that you have a death benefit that can be used to pay off debt and or provide a multiple of your income on death to support your family would be a huge weight off everyone’s shoulders.
Life insurance can be used for a variety of reasons, to repay debt, to provide and income and also for more complete reasons such as to pay an Inheritance Tax Liability. There are also different types of life insurance such as “Term Protection” and “Whole Life” that are used for very specific purposes.
This is where an independent financial advice can be invaluable. An independent financial adviser can fully assess your requirements/needs, complete all of the necessary research and provide a recommendation, with full justification taking into account every available provider in the market.
I would urge you to consider what is important to you and your family in the long term and whether you have enough life insurance in place to provide for your loved ones in the event of your death.
If you wish to discuss this further, please contact Ben Horsfield 0161 969 1703, or [email protected]
This article was written by Ben Horsfield, Head of Mortgage Services, Suttons Independent Financial Advisers Ltd