Apr 23 2020

We often underestimate our own value. We insure our homes, our cars and our pets but we often forget about life protection.

But if something should happen to you, the last thing you would want is for your family to be worrying about money. One of the most important aspects of your financial planning should be to ensure that you’ve made provision for your family and any dependants in the event of a serious illness, injury or untimely death.

Generally speaking, anybody with dependants or an outstanding mortgage should look at taking out a life assurance policy. At the very least, this should cover any borrowing and ensure the family can keep their home, but preferably it should provide an additional sum to help cushion the shock to your family finances at such a difficult time.

The level of cover should match your specific circumstances, which means it’s crucial to choose the right term and sum to insure. And by putting the benefits paid on death into an appropriate trust, this can be a very useful way of ensuring they are passed on to the intended beneficiaries at the right time.

The proceeds also won’t form a part of your estate when considering any Inheritance Tax liabilities.

Deciding what type and level of insurance to take can be a challenge, especially without the right advice but below are two different options that are available:

Whole-of-life insurance

This policy has no fixed term and the cover will remain in place until death, provided that you continue to pay the premiums.

Whole of life policies, which pay out a lump sum at the time of death are often considered as a means of insuring against post death liabilities including funeral costs and Inheritance Tax.

Term assurance

Term assurance may be suitable if you only need cover for a certain period of time, perhaps until your children have moved out, or a mortgage has been paid off.

You decide on how long you want the policy to last for. If you die during this time, it pays a tax-free cash lump sum to your loved ones. However, if you live beyond the end of the term, your plan will have no cash value. There are different types of term insurance available including:

  • Level term assurance
  • Decreasing term assurance
  • Family income benefit

While the proceeds of a life insurance policy won’t usually attract income or capital gains tax, it will form part of your estate and may therefore be subject to Inheritance Tax. Putting an insurance policy into trust at the outset means the proceeds will be paid directly to your chosen beneficiaries in the event of your death, rather than to your legal estate, and will not be taken into account when Inheritance Tax is calculated.

While no one likes to think of the worst happening, being prepared financially for all eventualities will give you peace of mind.

You may already have protection plans in place but it is worth reviewing them as your circumstances may have changed, your priorities shifted or there may be unnoticed gaps that can be bridged.

A Fairstone financial planner can provide you with independent financial insurance advice and help you find the products to protect your specific needs and circumstances.

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For further information, please contact:
Andrea Barker
/ Tel. +44 (0) 191 519 6243