AD. Family holds great significance in our lives, that’s why it’s crucial to ensure we protect them from future financial hardship in the event that the unexpected happens. My girls are my world, and nothing is more important than their wellbeing. By obtaining life insurance, not only will it safeguard your loved ones when you are no longer around, but it will also give you peace of mind.
Life insurance is a policy that can either cover you for a set period of time (term life insurance) or for the rest of your life (whole of life insurance), that pays out a cash lump sum to loved ones when you pass away.
I have collaborated with the UK’s largest life insurance broker, Reassured, to help explore the 5 key reasons family life insurance is essential and how best to find affordable cover in 2024.
[Photo by Vlada Karpovich]
Why You Should Secure Family Life Insurance
1. Protect Your Mortgage
Many people have large mortgages or rent payments, which can be one of the biggest financial debts you can have. According to Finder.com, the average outstanding mortgage debt per household in the UK in 2023 is £129,130. If you were to pass away, any mortgage debt you have could be passed on to loved ones, or they could be forced to sell their home. Having life insurance in place can help cover these costs and relieve the financial stress from family members during a difficult time.
There are types of policies that are designed to pay off a mortgage if the policyholder passes away. For example, decreasing term life insurance provides a cover amount that decreases during the policy term in line with a repayment mortgage. Level term life insurance provides a cover amount that remains fixed, which could be used to cover an interest-only mortgage.
You may like to read my top tips for first time buyers post here.
2. Funeral Costs
Thankfully it may seem some time away for most of us with smaller children, however it is a good idea to consider high funeral costs when arranging life insurance. Having to organise a funeral can be a distressing experience, especially having to figure out how to afford one.
Since 2023, the cost of dying has inflated quite dramatically. SunLife have released their 2024 report stating that funeral costs have increased by 5% to £9,658.
Basic funeral costs can include:
- Professional fees for administering the estate
- A basic funeral service
- Optional extras (e.g. a wake, flowers, cars etc)
However, prices can vary depending on how basic or extravagant you and your loved ones intend your funeral to be. Where the funeral takes place in the UK can also dramatically impact the final cost.
Whilst you could organise a funeral plan, having a life insurance policy pay out (instead of or additionally) can also take the weight off and help cover all the essential expenses, as well as covering other financial aspects.
3. Avoid 40% Inheritance Tax
When you pass away, there’s a chance that your loved ones may be required to pay inheritance tax on your estate. It is recommended to have life insurance and for it to be written in trust to minimise this cost.
If your estate is worth over £325,000 then any amount over this could be liable to 40% of inheritance tax.
If you do write your policy in trust, this can ensure that:
- You can avoid IHT tax if you are eligible for it to be payable
- The pay out can be given to whoever you decide
- The pay out can be made quicker
It can be difficult for those intending to leave money behind for their children once they pass away, as tax and bills can significantly affect the amount of your children’s inheritance.
However, if you take out a life insurance policy that is written in trust and covers these bills, they could enjoy their inheritance in full.
Please note you may not 'avoid 40% inheritance tax' unless you have written your policy in trust when taking out life insurance.
4. Pay For Childcare Costs
Family life insurance is for the whole family to be protected. It could cover things like childcare for little ones or their future education funds.
Whether you are a stay-at-home parent, single parent or both you and your partner work, considering childcare is important and what arrangements you’d need to make if you were to pass away.
In the event of death, there would still need to be at least one breadwinner in the family to provide for your children, therefore by having a lump sum paid out from life insurance, this can replace an income and help arrange childcare costs.
Whilst it will depend on the age of your child, sending a child to a nursery full time is about £263 per week (according to Money Helper).
5. Peace Of Mind
Lastly, securing life insurance can give you a peace of mind that your family will be protected when you are no longer around.
Whether you have many financial commitments or want to leave a small inheritance for your partner or children, finding an affordable policy is the first step towards protecting your family.
You can compare quotes to find an affordable policy by:
- Online personal research
- Comparison website
- Life insurance brokers
- Going direct through insurers
Often people don’t realise how important life insurance protection is, until they really need it and when it may be too late. So why not seize the day and secure your loved ones’ financial future, it may be one of the best decisions you ever make.
