Life insurance: the ultimate safety net for your family
A life insurance policy will help bring financial security to your family in the event of your death. It’ll also help you enjoy life, by giving you peace of mind.
Thinking about your own death is not something many people want to dwell on. But wouldn’t making sure your family could cope financially without you help give you peace of mind?
Life insurance may sound scary. But it’s designed to protect what is most important to you. Having a policy simply means your family will receive a lump sum if you die – or in some cases a guaranteed monthly income. So, if the worst did happen, your loved ones would at least be able to pay the mortgage, bills and any education costs.
But perhaps you’ve looked into this before, only to be put off by industry jargon? What’s the difference between term insurance and whole-life assurance? What is meant by ‘guaranteed premiums’ and ‘waiver of premium’?
If you usually give up when confronted with such language, read on.
Term insurance and whole-life assurance explained
Term insurance lasts for a fixed term – often between 10 and 25 years – and only pays out if you die during that period. If you’re still going strong at the end of the term, it ceases to
have any value and cannot be cashed in (although the satisfaction of outliving the policy will probably be compensation enough).
There are three main types of term insurance:
* Level term insurance – offers a set sum of cover for your death at any point during the term
* Decreasing term insurance – the cover gradually falls, so the pay-out will be less if you die near the term’s end. Mortgage providers tend to try to sell you this when you apply but get a range of quotes before committing.
* Increasing term insurance – the cover gradually rises over the term to account for inflation.
Expect decreasing term insurance to be cheapest and increasing term insurance to be most expensive.
So how does whole-life assurance differ?
It guarantees a pay-out when the inevitable comes to pass. That’s assuming, of course, you’ve always paid the regular charge or ‘premium’ for your cover. Not surprisingly, these whole-life policies are more expensive.
Premiums and pay-outs: the nitty-gritty
Premiums can be paid monthly by direct debit or annually. Paying for the year ahead may earn you a discount as it reduces an insurer’s administration costs.
All forms of insurance relate to risk. That means your premium will depend on a variety of factors including your age, whether you smoke, family medical history and any health conditions.
If you choose guaranteed premiums, the amount you pay each month will always stay the same. Charges are likely to be higher at first but you need to weigh this against the long-term certainty that your premium won’t increase.
You may be invited to consider adding ‘waiver of premium’ to a policy at extra cost. Doing so will ensure your premiums are paid if you cannot work for an extended period due to illness or injury.
Finally, pay-outs: with term insurance they come as a lump sum. If you believe your family would be better served by a regular income, consider family income benefit policies. They provide a monthly tax-free payment. But beware: the income stops when the term ends, even if you only die shortly before that date.
With some life assurance plans, some or all of your premiums may be paid into investment funds. The policy value may build over time – but the pay-out on your death will also vary depending on how the investments perform. You need to consider carefully the details of the plan and how it works, before you buy.
Critical illness cover: the critical facts
How would you and your family cope financially if you couldn’t work due to poor health?
Here’s our essential guide to the importance of critical illness cover, and whether it could be right for you.
No one likes to think the unthinkable. But statistics show we are four times more likely to suffer a serious illness than die before the age of 65. Critical illness cover can offer a financial lifeline if you develop a serious medical condition. It pays out a tax-free lump sum if the policyholder is diagnosed with a life-threatening illness specified by their plan.
While most of us tend to worry about the most common serious illnesses such as heart attack, cancer and multiple sclerosis, critical illness cover protects you against a much wider range of conditions. How wide varies from policy to policy.
The Association of British Insurers’ code on critical illness requires insurers to cover 23 different conditions, although some providers’ policies cover more than double this number. Some may also cover a policyholder who becomes permanently disabled as a result of injury or illness, either as standard or for an additional premium.
Why is critical illness cover so important?
Critical illness insurance can make sure that any large debts, such as your mortgage payments, are covered if you can’t work due to illness. It can also give you a lump sum to live off while you are unwell.
The potential for a lump-sum pay out is especially important if you’re the family breadwinner. But even if you’re not, it may still be worth considering critical illness insurance with this feature. It can help you to meet your living expenses if you have to stop work due to ill health, and to cover the cost of childcare if you suddenly find yourself unable to take on that responsibility.
What are my choices?
You can choose a policy that either covers you for your whole life or for a fixed number of years. Cover is usually available for adults up to their mid-60s – it’s primarily cover for people who are working.
Remember that critical illness cover can often be added to a life insurance policy, so that it pays out either on diagnosis of serious illness or on death, whichever comes first. Combining cover can mean that premiums are cheaper than if you were to take out two separate policies.
The quality of the cover is as important as the price. Many people choose life assurance products on price alone, but you should look carefully at what both life and critical illness policies cover.
What do I do next?
Contact us to discuss your needs or for a no obligation free of charge protection review. If you run a business read on.
The damaging legacy business owners shouldn’t overlook!
If you run your own business you’ll know the demands and rewards of doing so.
Something that’s often overlooked by business owners, and maybe particularly relevant to ‘olderpreneurs’, is the financial implications their death or illness could have for their families and/or businesses.
Maybe you’re one of the one in five 50-plus-year-olds responsible for setting up a business today. If so, you’ll be pleased to know the odds of your firm lasting five or more years are over 70% (compared to 28% for those younger than 50).*
A common response of many sole traders is ‘if I die, the business dies with me’. But have you thought about the potentially costly responsibilities and legal commitments your family would be left with should the worst happen? These commitments may include:
* Finance – do you have any outstanding loans/overdrafts?
* Clients/ongoing contracts – do they still need to be fulfilled?
* Leased premises – could a penalty be incurred if they are no longer needed should the business be wound down?
* Staff – would they be eligible for redundancy pay should the business no longer be operating?
Loans are a regular undertaking for those starting up or expanding their businesses. But repayment of a loan when the owner is no longer able to work – at the same time as dealing with the loss of manpower, income and business contacts – can be crippling for a business.
Having the right protection in place can ensure that the funds are available to smooth over any adverse financial impact of you no longer being able to work. Whether that’s helping your family to pay what’s owed and to wind the business down, or enabling your co-owners/colleagues to continue business as usual at a difficult time.
Business protection can be complex so it’s essential to get advice from a financial adviser. They can review your business’s financial affairs and any existing life/critical illness cover and suggest a suitable course of action.
Importantly, depending on how your business is structured the right protection may need to be structured differently to your own personal life insurance. A financial adviser will help you establish the right level of cover to meet family commitments (eg paying off the mortgage, or covering the cost of children’s education) as well as business commitments.
Much like a solicitor or an accountant, a financial adviser is a key professional to have on-board to help protect and grow your business.
Use the contact us to discuss your requirements.
*Reported by The Guardian, 05/01/14