Nobody wants to think about dying, but, providing financial protection for loved ones when you die means they have one less thing to worry about at a difficult time.
The right type of help to cover costs
As well as grief and stress, death can bring unexpected costs. Having the right life insurance can help ease this, and the right type will depend on your personal circumstances.
Here are five things to think about before taking out life insurance:
- Work out what cover you need
To find out what cover is right for your family and how much you need, start by looking at your basic monthly outgoings (rent or mortgage, bills, other debt repayments), and consider how much you contribute to these outgoings. This way, you can work out how much your family would need when you pass away.
- Adjust for future inflation
You might want to factor in the rising cost of living when you’re deciding on cover limits. It’s easy to forget that inflation typically makes most household bills more expensive over time, and you are likely to want a policy that keeps up. For example, a loaf of bread that costs 40p in 1960s Britain would cost a lot more today.
Alternatively, you may want to choose a policy with an ‘increasing cover’ option. This is where the single payout increases each year in line with inflation or by a fixed amount.
- Think about the type of payout you want
One concern is how to replace lost income when a partner dies. If you’re in paid work, you might want insurance that pays a single amount of money or a regular income. Family income benefit insurance pays out a regular income until the policy ends while level term insurance pays out a single, fixed amount of money. There’s also decreasing term insurance which means the payout amount will decrease over a period of time. It’s generally used to help pay off a decreasing debt like a mortgage.
- Think about Inheritance Tax (IHT)
Together, with loss of income, a death in the family can bring specific costs, like inheritance tax. If you think you might be liable for IHT, it may be worth contacting a financial adviser because there are steps you can take to significantly reduce the amount you might pay.
Advisers may charge for their services, so it’s important to agree any fees upfront.
- Insurance to help pay for a funeral
As well as helping with financial protection in the event of a loved one’s death, many people also consider buying life insurance to help cover funeral costs. There are over-50s life insurance plans available that can leave money for loved ones, as a gift or to help pay for a funeral.
Life insurance from Royal London