Back in January, when we were all making those New Year resolutions, who would have predicted how everyday life would have changed so radically by Easter? Coronavirus (COVID-19) has underlined the importance of life insurance. It’s understandable that we would rather not think of the time when we're no longer around. However, it is important to protect the things that really matter – like our loved ones, home and lifestyle – in case the unexpected happens.
Get the right life insurance
We never know what life has in store for us, so it’s important to get the right life insurance policy. A good place to start is asking yourself three questions:
- What do I need to protect?
- How much cover do I need?
- How long will I need cover for?
We insure our cars, homes and even our mobile phones, usually for their replacement value. So it goes without saying that we should also be insured for our own full replacement value, to ensure that our loved ones are financially catered for in the event of our premature death.
Life insurance provides a safety net for your family and loved ones if you die, helping them cope financially during an otherwise difficult time. It offers reassurance that your family would be protected financially should the worst happen. Life insurance usually pays out a cash sum if you die while covered by the policy.
You can choose:
- The amount of life cover you need
- How long you need it for
- Either monthly or annual premium payments
Make sure you take into account your family’s living costs, as well as any outstanding liabilities such as a mortgage. If you have a spouse, partner or children, you should have sufficient protection to pay off your mortgage and any other liabilities. After that, you may need life insurance to replace at least some of your income. How much money a family needs will vary from household to household, so ultimately it's up to you to decide how much money you would like to leave your family that would enable them to maintain their current standard of living.
Not everyone might need life insurance, but if your spouse and children, partner or other relatives depend on your income to cover the mortgage, liabilities or other living expenses, then it is definitely something you should consider. You'll want to make sure you choose the right type of cover for your situation. That's why obtaining the right advice and knowing which products to choose is essential. This includes look at the most suitable sum assured, premiums, terms and payment provisions.
At Panthera Wealth, we can guide you through the maze of life insurance options so you can choose with confidence - call us to book a consultation.
The appropriate level of life insurance you choose will enable your dependants to cope financially in the event of your premature death. When you take out life insurance, you set the amount you want the policy to pay out should you die. This is called the ‘sum assured’. Even if you consider that currently you have sufficient life assurance right now, you’ll probably need more later on if your circumstances change. If you don’t update your policy as key events happen throughout your life, you may risk being seriously under-insured.
As you reach different stages in your life, the need for protection will inevitably change. How much life insurance you need really depends on your circumstances; whether you’ve got a mortgage, you’re single or have children. Before you compare life insurance, it's worth bearing in mind that the amount of cover you need will very much depend on your own personal circumstances, such as the needs of your family and dependants.
When you should review your life insurance requirements
Key events in your life that should trigger a review of your life insurance cover include:
- Buying your first home with a partner
- Covering loans
- Getting married or entering into a registered civil partnership
- Starting a family
- Becoming a stay-at-home parent
- Having more children
- Moving to a bigger property
- Salary increases
- Changing your job
- Reaching retirement
- Relying on someone else to support you
- Personal guarantee for business loans
Individual lifestyle factors determine the cost
The price you pay for a life insurance policy depends on a number of things. These include:
- The amount of money you want to cover
- The length of the policy
- Your age
- Your health
- Your lifestyle
- Whether you smoke?
Two basic life insurance types
There are two basic types of life insurance: ‘term life’ and ‘whole-of-life’, each with different variations:
The cheapest, simplest form of life insurance is term life insurance. It is straightforward protection; there is no investment element, and it pays out a lump sum if you die within a specified period. There are several types of term insurance.
A whole-of-life insurance policy is designed to provide you with cover throughout your entire lifetime. The policy only pays out once the policyholder dies, providing the policyholder’s dependants with a lump sum, usually tax-free. Depending on the individual policy, policyholders may have to continue contributing right up until they die, or they may be able to stop paying in once they reach a stated age, even though the cover continues until they die.
Remove the burden of any debts
Generally speaking, the amount of life insurance you may need should provide a lump sum that is sufficient to remove the burden of any debts and, ideally, leave enough over to invest in order to provide an income to support your dependants for the required period of time. So, you need to clarify what you want the life insurance to protect. If you simply want to cover your mortgage, then an amount equal to the outstanding mortgage debt can achieve that.
To prevent your family from being financially disadvantaged by your premature death and to provide enough financial support to maintain their current lifestyle, there are a few more variables you should consider:
- What are your family expenses and how would they change if you died?
- How much would the family expenditure increase on requirements such as childcare if you were to die?
- How much would your family income drop if you were to die?
- How much cover do you receive from your employer or company pension scheme and for how long?
- What existing policies do you have already and how far do they go to meeting your needs?
- How long would your existing savings last?
- What state benefits are there that could provide extra support to meet your family’s needs?
- How would the return of inflation to the economy affect the amount of your cover over time?
Help with choosing the right life insurance
At Panthera Wealth, we are happy to guide you through your life insurance requirements, based on a review of your personal finances and future requirements. Call us to book an online consultation, or a suitably social distanced meeting.