No one wants to think about death. However, planning for that eventuality can give you and your loved ones the peace of mind that financial support would be available if the worst happens.
Money Marketing reports that, in 2021, the average term life assurance claim was £69,760. So, what could your loved ones use that payout for? Here are seven practical ways.
1.Repay your mortgage or other borrowings
One of the most common occasions that Brits arrange life insurance is when they take out a mortgage.
Your mortgage is likely to be the biggest financial commitment you make in your life, and so it makes sense that you’d want to ensure the debt was repaid if you died.
Mortgage life insurance is a cost-effective way to ensure your loved ones can repay your outstanding mortgage balance on death. It is designed to reduce in line with your repayment mortgage so will provide a lump sum if you die within the mortgage term.
Your beneficiaries can use the payout to pay off the debt, meaning they benefit from the security of owning your home outright.
Life insurance to cover a mortgage can start from just a few pounds a month. Ensuring your loved ones don’t have to sell your home if you were to pass away can provide real peace of mind.
As well as a mortgage, you may have other borrowing such as personal loans or credit cards. Ensuring you have enough protection in place to clear these debts if you die can also provide financial security for your loved ones.
2.Pay for your funeral
When you pass away, one of the first tasks your loved ones will be faced with is to organise your funeral.
They might have to arrange a funeral while coping with grief, and with little or no recent experience. If you have not left any instructions or guidance as to how you would like the service to be, they may also have to make a range of decisions to ensure they give you the send-off you would want.
According to Money Helper, the cost of a funeral can vary by the type of service and location. However, the average cost is:
- £3,290 for cremation using a funeral director
- £4,383 for burial using a funeral director.
Both options include collection and care of the deceased, a basic coffin, hearse, managing a simple service and cremation/burial fees.
If you want to ensure that your loved ones have immediate access to money to pay for a funeral, life insurance is a simple and cost-effective way to provide this.
3.To replace your income
If you were to pass away, would your loved ones be able to survive without your income? If not, then you may want to ensure that your income is replaced if you die.
If you have children, then family income benefit can be a cheap and effective way to ensure your family continue to receive an income even after you are gone. This type of protection provides a monthly income after your death for a fixed term – perhaps until your children are financially independent.
Alternatively, you could arrange your protection so that a lump sum was provided on your death. Your loved ones could then invest this money to generate an income, or they could draw down the payout as required to meet their regular commitments. That brings us to…
4.So your loved ones can maintain their standard of living
If you were to pass away prematurely, would your family be able to keep paying their regular bills? Could they pay their mortgage or rent, their utility bills, and Council Tax?
If not, you may want to ensure that there are funds available for them to maintain their standard of living. This may be especially true if you have children, and you want to be sure that they benefit from all the potential opportunities open to them.
Without ensuring there is financial support available, your children might not be able to live the life you had hoped for them – such as going to university or being able to buy their first home.
5.To provide a legacy for children, grandchildren or other relatives
Many people want to leave a legacy to their loved ones when they die. This might be a lump sum for your children or grandchildren to help them off to a great start in life, or to other relatives such as nieces or nephews.
You may also want to leave a lump sum to a good cause that means a lot to you.
Life insurance will provide a lump sum that you can leave to a range of individuals or charities that are important to you. For example, you could leave money in trust for a child or grandchild until they turned 18, or you could leave cash to a local charity or sports club to help them pay to continue their good work.
6.To pay an Inheritance Tax bill
In the 2022/23 tax year, Inheritance Tax (IHT) could be due if you die and the value of your estate is more than £325,000. If you plan to leave your home to a child or grandchild you can benefit from a higher tax-free threshold of £500,000.
As house prices rise, more and more people are being affected by IHT. HMRC report that, in the first half of the 2022/23 tax year, they took a record £3.5 billion, which is £0.4 billion higher than in the same period a year earlier.
If your estate is worth more than the IHT threshold your beneficiaries could lose 40% of the value of your estate to IHT. So, if you want to ensure that they benefit from the full value of your estate, you may want to consider taking out life insurance that can be used to pay any IHT bill that falls due.
Remember that this life insurance should always be placed in trust to ensure it falls outside your estate when you die. If you don’t, the proceeds will just be added to the value of your estate, and it could make your IHT problem worse.
7.To ensure your pets are cared for
Your pets are likely to be an important part of your life. So, when you’re no longer around, you’ll want to know that they can be cared for.
According to the PDSA, you can expect a dog to cost you at least £5,000 over their lifetime. The charity says that the average cost of caring for a dog is:
- Small dog breeds: At least £5,000 to £9,600
- Medium dog breeds: At least £6,600 to £10,400
- Large dog breeds: At least £5,400 to £12,200.
If you want to ensure that a loved one is not out of pocket if they need to take over the care for your pet, you may want a portion of your life insurance to go towards the cost of pet care.
This legacy can ensure that your beloved pets will continue to receive excellent care, without putting a financial burden on their new owner.
Get in touch
Life insurance gives you the peace of mind that those closest to you will receive financial support when you pass away.
It can provide a valuable injection of capital at a stressful and emotional time, enabling your family to pay vital bills, meet the costs of your funeral, and to provide a safety net that enables them to maintain their standard of living.
As life insurance experts, we can help you to find the right protection for your needs. We work with dozens of the UK’s leading insurers and can scour the market for you to ensure you benefit from the most cost-effective cover.
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