Life Insurance
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What is life insurance and why do we need it?
There are two certainties in life: death and taxes. And life insurance falls into both those camps. I am being slightly facetious – this is extremely important. The first question we ask our clients about protection is what they want to happen if they weren’t around.
Generally people don’t want to leave their family with debt to struggle with or for their children not to live the life they’re used to. A very simple solution to that is to put some life cover in place. But there are tax implications.
This is such an important area. I would much rather see money go to your family than HMRC. That’s a large theme of what we will talk about today, but the key is thinking about what you’d want to happen should you pass away.
Is life insurance worth it?
It’s certainly worth getting. Life cover seems really simple – if you die, the company pays out. But there is a bit more to think about than that because here at Heron Financial we predominantly deal with quite successful people. So inheritance tax planning is something we need to think about.
The rules do change over time but the general trend is that more and more people get caught by this particular tax. If you have life cover in place, that’s great because it clears off the debt on your property. The risk, though, is that the surviving partner is left with a tax bill.
What we can do is make sure that’s either accounted for, or do something really simple, which is write the policy into trust. If the policy is written into trust it is paid separately from your estate and therefore not liable for tax.
One thing people don’t often think about is that by arranging life cover you’re inadvertently creating quite a big tax liability as well. But this is something that we can address. It doesn’t cost any money. It’s very low on effort, it just requires a bit of thought.
How do I know if I am eligible to apply for life insurance?
There are no particular rules other than there needs to be an insurable need. We’re a mortgage brokerage so primarily we’re going to focus on the mortgage – but it’s not the sole concern. You might have a partner who, for example, doesn’t work. You might have children or dependent relatives.
So what we look at is if you’re not around, how much money would make sure your plans are carried out. You might say, for example, that you want to make sure your children get a private education that costs a certain amount a year for the next ten years – then that’s the amount that we put in as your cover.
Something that also comes up as part of the process is if people have pre-existing medical conditions. People are often concerned about that, but it’s very rare not to be able to get cover.
What we always say through this process is that you just need to be completely honest with us. We’ll go through a fact find and talk about your medical background. Very few clients have an issue with that. We’ll work out how much cover you need and which insurer will meet your needs – there’s nothing too much to worry about on that front.
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Our key aims are to fully understand what you are looking to achieve, create a solution tailored to your needs, deliver results through an excellent service and build a relationship for life.
How much life insurance do I need? How long should I get life cover for?
Our starting point as a mortgage broker is to clear the mortgage. We’ve got a duty of care to our clients where we create a mortgage and we must make sure they clear it. In the normal course of events, the mortgage is repaid over time.
But we need to consider something interrupting that plan. We make sure that insurance covers the mortgage as a minimum. Then we look to take care of your surviving partners, children, etc. The amount will vary down to each person – the time until the mortgage ends or when their children finish full-time education or where they become independent.
You might also have an adult dependent – your parents, your grandparents or a sibling. Is there a care cost there? So there’s a whole raft of things and this is very individual. We’ll help you explore the pay out you need, your plans and the timeframe.
It’s not a fun thing to think about, but I’ve done this job long enough to see the value of it. I’ve had people come into our office where their partner has died and we’re the only people that give them good news. We can get them the money to clear the mortgage and go on with their lives.
What should I budget for life insurance?
We’ll only ever put something in place that you can afford. The costs do vary wildly because of factors like your age and the amount of cover. Lifestyle factors are a big thing too – if you love boxing or drink too much or if you smoke, that will affect the cost.
As a starting point, we usually look at fully protecting the mortgage and other key things. Probably about 10% of your mortgage payment is about right. If you can budget for that then we can take care of most things.
What else should we consider on life insurance?
The first thing is that this is much more complicated than you might have first thought. There’s the tax planning and the type of cover, for example. I’ve not used any technical terms today because it is a highly technical thing. I don’t want to get into ‘sum assureds’ the ‘policy base’ and all these horrible words.
We just look at the human terms of what you want to protect. We’ll explain those technical terms and hold your hand. The main thing to emphasise is how important it is to get things set up correctly, with a will and trust in place. That makes sure the right money goes to the right people at the right time.
My final point is around the quality of cover. All insurance is not born equal. We’ve done a huge amount of work looking at the different providers and the additional benefits that they provide. Some providers are brilliant at giving you private GP appointments, rehabilitation services, counselling, legal cover… all sorts of things you wouldn’t have thought of.
All those additional benefits can often wipe out the cost of paying for the insurance in the first place. If something’s cheap, it’s cheap for a reason. Sometimes, for a nominal cost of one or two pounds a month, you get loads of great stuff that actually helps you in your life.
Recently I needed a GP appointment for my daughter. Trying to get one with her normal doctor was a nightmare. But through my insurer I could just do it online and book a slot like a restaurant booking system. She was seen the next day.
The NHS sadly is going to cover less and less stuff, so the more you will have to do yourself. Benefits like this can be worth their weight in gold.
It’s likely you’ll have numerous questions regarding your life insurance policy and we’re only too happy to advise. We’re often asked if policies are sold with specific terms. Whole-of-life policies for example are available and will pay out upon your death. Keep in mind however that these can be costly, especially when you’re paying into old age. An alternative to whole-of-life offers cover specifically for a set period. Many customers choose this policy to coincide with the length of their mortgage or up until children are no longer at home. We’re also quizzed on refunds should nothing happen throughout policy duration. The fantastic news is you’ve never had to use it. The good news is you’ve protected your family in an unlikely event. Life insurance is there for protection and should be seen as an investment you’d prefer never to use. At Heron Financial we will determine the best life insurance policy based on your circumstances and requirements. With cover available that keeps up with the cost of living, you really are worry free. It’s really easy to get yourself protected today. Speak to one of our experienced, friendly advisers who will give you free, no obligation advice. We have you and your families best interests at heart and are here to ensure you have the best possible protection. Our advice is free. Protection is invaluable.
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