Is your family financially protected?
Reviewing life insurance provision is arguably even more important than making sure you are financially prepared for retirement or that your investments are in good order. The reason is simply that an early death robs a person of the time needed to achieve their financial goals. It is one thing to plan for retirement in, say 15 years, or build up a capital sum over five to ten years. It is quite another to make sure your loved ones are provided for in the way you would want knowing that the date of your death could be anytime from today onwards.
Well over a million people currently have funeral plans in place. However, the true financial loss experienced by a family when a breadwinner dies is out of all proportion to the £4,000 or so that an average funeral costs. Someone aged 35 earning £50,000 a year with a £200,000 mortgage and children aged five and seven could easily find that their partner would need £1 million simply to make up for the loss of income over the next 18 years and the repayment of half of the mortgage.
Pure life insurance is not expensive − in fact, the monthly premium for an 18-year family income plan for that 35-year-old to provide £50,000 a year to their family in the event of their death could be as low as £25 a month. For them to provide £1 million in cash as an alternative using an 18-year level term insurance plan would still be possible for just under £45 a month.
Of course it’s impossible to quantify the value of someone’s life in purely financial terms. On the other hand, the ability to provide adequately for your family so that they can still fulfil their hopes and dreams is an act of love that itself cannot be measured.
As a minimum, it is generally important to cover any outstanding mortgage or other debts. If you are self-employed, you need to make sure that you have enough cover for business debts. For those with children, your priority should be to provide sufficient cover to replace your income until your children are no longer dependent and it would be prudent to assume at least age 23 for this. Parents should not overlook the fact that the surviving partner may need to meet the cost of university education or private school costs.
If you receive life insurance cover as a benefit of your employment, please bear in mind that this will need to be replaced if you change jobs and this may be at a time when your health could have deteriorated. Although there is mention of the ‘breadwinner’ please be mindful of the true value of homemakers and insure with that in mind.
If you are single with no children, you should still be protecting your income from the risk of a serious illness or accident. Such things can undermine your ability to meet your financial objectives.
In any event, it is important to take individual advice based on your own particular situation, so please get in touch to review your life and health protection needs.