Which Cover?
Choosing your life cover seems a bit daunting at first, with so many different types of cover and ways you can arrange it.
You can do it, though, don't worry, we'll help you.
First, think why you need the life cover, you always have a reason for needing life assurance, and that reason is always very important to you
The three most important reasons for most people, are to make financial provision for a partner, to provide financially for children, and to pay off a mortgage or other loan.
Your Partner
The first is obvious, someone you love and want to look after, if you died you wouldn't be able to do it. Would they be able to look after themselves financially if you weren't there? Remember they may be looking after your children, which would restrict their ability to work, and they may have had some years out with home and familiy responsibility and have lost a few years progression in their usual career path.
There will be a period of grief and this may be extended, helping children through the difficult times. So, in the short term, yes, they will need looking after financially, in the longer term, with a possible return to work, perhaps less so.
The type of cover to consider here would be Level Term Assurance, perhaps combined with Famility Income Benefit, particularly when children are involved.
Dependent Children
Don't get too concerned by the idea that your children will be financially dependent on you for thirty years or more, although reluctance to fly the nest seems to be more and more common.
Although they may prefer to stick around and let you look after them, they should be able to be financially independent soon after they leave full time education. This will vary from about age eighteen to about twenty five, if they think they can get away with it.
The main considerations are providing for them financially and making sure they are able to stay in education for as long as will give them the best start in life.
One important thing is to try to make sure they are able to stay in the house which is familiar to them as the family home, so make sure to provide for paying off any mortgage, and an ongoing income to pay rates and running costs, or rent where appropriate.
The difficult time following the loss of a parent is not the time a child should have to move to a strange house, possibly in a new neighbourhood, or even a strange town, and a new school.
Providing for children is linked to providing for a partner, of course, so some areas will overlap. For example, making sure the surviving partner can stay on in the family home, and doesn't have to go out to work immediately, helps to provide for the children as well.
Mortgage Repayment
The biggest purchase most people make is their home, and it is usually necessary to fund the house purchase by taking out a mortgage with a bank or building society. Historically, the standard term over which a mortgage is repaid is twenty-five years, but it is often longer.
If you buy your first house with your spouse or partner, you will usually take the mortgage over twenty-five years. Then, typically, five years or so later, you may decide you want, or need, a bigger house. There may now be children, a dog, three cats, and one or both of you wants to work from home, so you need an office.
So, you move to a new house, and the amount you need to pay is quite a bit higher than what you will get for the old house, so you need a bigger mortgage. To keep the repayments to an affordable level, you take the new mortgage over twenty-five years again, not over the twenty years which would have been the remaining term of the original mortgage.
This may happen again, and perhaps again, as your income increases, the equity in your properties grow and you want to move on and up, to keep pace with your career and your lifestyle.
One thing to consider then, is whether Mortgage Protection Assurance is the most appropriate type of policy for your mortgage protection needs. It could be Level Term Assurance, and it could be for a term longer than the term of the original mortgage. Plan ahead, think about it.
The Future
Providing for the risks of untimely death in earlier life is not too difficult, then, you assess the risks, the potential costs which may result, and take out some term assurance for the duration of these risks, relatively easily and possibly, surprisingly cheaply.
Now that was what might happen, and which you not surpringly hoped, would never happen, as did the insurance company! However, insurance, or more correctly assurance, may be required for something which certainly will happen, eventually, and we hope in a very long time, death. With death comes death taxes, usually, and in our case we call it Inheritance Tax, or IHT, which doesn't sound quite so bad!.
There is currently no IHT on transfers between spouses or civil partners, so on the first death of a couple, the surviving partner can inherit everything, house, other property, investments, money, everything, without having to pay any IHT. Only fair, though, really.
The problem comes with the death of the surviving partner. There is currently a threshold, below which no IHT is payable, but above the threshold, IHT is payable, usually at the higher rate for Income Tax, on everything above the threshold.
This applies whether you can realise the assets or not, so, if you have a house worth half a million, and very little else, the house, which may be the family home, could have to be sold to pay the tax.
However, a Joint Life, Last Survivor, Whole of Life Policy, on the lives of both partners, held in trust for the children, would pay out to the children, outwith the estate (so no IHT would be paid on the proceeds of the policy), and this would enable them to pay the IHT from the policy proceeds, and keep the family home.
Even better, the premiums payable on the policy would deplete the cash assets of the estate, meaning less IHT and the premiums themselves would usually be treated as gifts out of income for IHT purposes, so there would be no worry about surviving for seven years after making the gift.
What to do next
Look through our information sections on the type of cover you have chosen and we will provide further details and take you through the comparison process and help you to arrange the cover you need.
