Life Insurance / Life Assurance - Financial Advice From Isis Financial Planners - Independent Financial Advisers (IFA)
Life insurance is designed to provide a lump sum benefit in the event of death.
Many people that should have life insurance don't have any at all. All too often we find that couples with children are completely unprotected. As financial advisers, one of our priorities is to ensure that clients with families have some life insurance cover. But of course it's no good waiting until illness strikes to realise you need cover - by then it could be too late. Life insurance companies aren't interested if you've already had a heart attack for example - you need to apply whilst in good health.
People don't bother with life cover because of the 'it'll never happen to me' syndrome and yet we all know of people that have died very suddenly, sometimes tragically young. How bizarre to insure a metal box on four bits of rubber but have no life insurance. OK, car insurance is compulsory but it's still odd.
Not all life insurance is designed purely for family protection. Often it is needed to cover a debt such as a mortgage. It can also be used for inheritance tax planning. Whatever the reason, there will be policy available to suit you.
Of course some people end up with life cover when they simply don't need it - single people with repayment mortgages often take out life insurance cover when it isn't really necessary. If this is you, why bother? If you die your property will be sold and any outstanding mortgage repaid from the sale proceeds. A plan that would benefit you, such as critical illness cover or income protection, would be a better use of your money.
Confusion often arises over terminology - what is the difference between insurance and assurance. Essentially insurance is to cover an event that might happen whereas assurance is to cover an event that definitely will happen. For example, we insure our cars because we might have an accident but we all know that one day we will die.
Term insurance is the most popular form of life insurance. As the name suggests, it covers you for a set term of years chosen at outset. If you need the cover in respect of a mortgage then it should have the same term as the mortgage. If you need cover for family protection, how long do you need cover for - to see a youngest child through higher education perhaps?
Whole of life insurance can, as the name suggests, last for the whole of your life. It can be used for family protection but its most common usage is to insure an inheritance tax liability. Unlike term insurance, where premiums are fixed at outset, whole of life premiums increase periodically. The older you get, the dearer the cover. Sometimes this means that the premiums are unaffordable but there is always the option to reduce the sum insured. Plans can always be stopped if premiums become too expensive.
Both term insurance and whole of life plans can either be single or joint life. Family protection plans should be joint life 1st death and whole of life plan for inheritance tax planning should be joint life 2nd death - we'll advise on what's best for you. People often think that joint life 1st death plans are cheaper - you may be surprised to learn that this isn't always the case and even if it is cheaper, it usually isn't by much.
Life insurance premium rates have reduced significantly in recent years. If you have existing plans, it could be worth finding out if the same cover is now cheaper. This can be the case if you have stopped smoking - smoker rates for life insurance can be up to 50% higher than the equivalent non-smoker rates. You should never cancel any existing plans before making sure that a suitable replacement is in force. Premium rates are now the same for both males and females. Again, men might find that the cost of a new plan is now cheaper.
We can advise you about placing plan benefits under a flexible trust wording to ensure that no additional inheritance tax is payable as a result of insurance proceeds going into your estate. A flexible trust also ensures that plan benefits end up in the right place - especially important if you haven't made a will.
Contact Isis Financial Planners to see how we can help you.