Share The Mummy, it’s OK Love!
If you have a family, you can ensure that they are financially covered in the event of your passing by taking out life insurance. Although, life insurance can be a challenging product to navigate, if you are not sure what you need to cover or how long to keep your family protected.
It is estimated that only 30% of the adult population in the UK has life insurance, which equates to around 8 million households. This means that the remaining 70% risk leaving debts such as: mortgages, house bills, child care, funeral expenses and other potential debts, in the hands of family members when they are gone.
By securing a policy, you can help prevent money problems for your loved ones if you lose your valuable income. Award-winning life insurance broker, Reassured Ltd, created this article to break down where to start on how to ensure your family is financially protected for the future.
What is life insurance?
Life insurance is a type of policy that provides your loved ones with a cash pay out if you are gone. The money can be used to help pay a mortgage (keep you in the family home), bills, childcare, and other essential expenses.
When applying for a policy, you’ll usually need to provide information on things like:
- Age
- Medical history/current health
- Smoking status
- Your lifestyle/work
- Sum assured (what you want the payment to be)
- Term length (how long you want your policy to be)
- Your BMI
This will help insurers calculate the level of risk you present and the amount of your monthly premium., It is important to be honest when providing this information to ensure you are offered the correct cover.
The cost of a life insurance policy will vary due to the factors stated above, although, you can get cheaper premiums by doing things like leading a healthy lifestyle or stopping smoking.
What type of policy is best for you?
There are different types of life insurance that suit different needs.
Term life insurance is the most popular type of policy among younger families looking to cover things like a mortgage and family living expenses (bills, transportation and childcare). There are three types to choose from:
- Level term life insurance–provides a fixed amount of coverage (payment remains the same) throughout the policy term. If you have an interest only mortgage, you may want to look into this type of policy. For more information or to compare quotes for free, Rest assured create this comprehensive level of term analysis.
- Decreasing term life insurance–the amount of coverage decreases throughout the term (the premium decreases). If you have a repayment mortgage, a policy reduction may be appropriate
- Increasing term life insurance–the cost of full term coverage increases (premium increases) in line with inflation
Each type of term life insurance shares these key factors –
- The policy can last up to 40 years depending on your age and the insurer you go with
- Pays only if you pass away during the term
- Fixed monthly premiums (excluding cover increases where premiums will also increase each month)
- Personal information needs to be provided (including health and lifestyle details) during your application, which helps calculate premium prices
If you are part of a married couple, you may want to consider joint life insurance. It can provide coverage for two people at the same time during the policy term. It’s more affordable than having two separate single policies, so if you’re on a budget, it can be a suitable option.
There are also other types of life insurance available that may be suitable for those who want to provide protection for loved ones, such as: family income benefit and whole life insurance.
The form you selected does not exist.
How much life insurance do you need?
Everyone’s situation is different, but if you’re not sure of your own needs, it’s important to consider these things when looking at what to cover for your family:
- Child care and education costs
- Housing bills (if you need to replace an income)
- Mortgage loans
- A legacy for loved ones
- Any other financial debts (credit card charges)
- Funeral expenses
You’ll also need to consider how long you’ll need a policy. This can be based on:
– How much time is left on your mortgage
– How long until your children are financially independent
– How long until you reach retirement
– What future debts you may have
What else can help protect your family?
As well as life insurance, there are other things you can do besides a policy to protect your loved ones, for example, writing your life insurance in trust and death in service benefits from your employer.
Writing in confidence
Writing your life insurance in trust is a process that removes your policy from your estate. This can help loved ones avoid or reduce a 40% inheritance tax bill when you pass away (if your estate is worth more than the £325,000 threshold).
Critical illness cover
Critical illness cover provides a lump sum if you are diagnosed with a life-changing (but not life-threatening) illness, covered by your policy (it depends on the insurer what illnesses are covered of a critical illness).
Income protection
Income protection is a type of policy that pays a percentage of your income (up to 70%) to help replace lost earnings if you are unable to work as a result of illness or injury.
Death in service
It is worth checking if you also have death in service benefits with your employer. This will provide additional protection for your loved ones if you pass away while earning (paying a lump sum, usually a multiple of your salary).
Where to start
When you have children and family who depend on your income, life insurance is important to protect their financial future. The sooner you get a policy, the sooner you’ll have peace of mind that they’re protected, and the cheaper your premiums will be.
The best way for moms to find an affordable policy that fits your family’s needs is by shopping around. You can do this by looking at comparison websites or doing your own digging, although it can be an easier and less stressful process by using a broker or going directly to an insurer.
Choosing the Right Broker or Insurer
If you decide to use a broker, make sure they have access to a wide range of insurance providers and are not tied to just one or a few companies. This will give you a broader view of the market and potentially more competitive rates. Brokers such as Reassured Ltd have a reputation for providing unbiased advice and comparing multiple insurers on your behalf.
Another advantage of using a broker is that they can guide you through the underwriting process. They often know which insurers may be more lenient or favorable based on specific health conditions or lifestyle factors, helping to get the best deal for your individual circumstances.
Direct insurers may offer promotions or discounts when you buy directly from them. However, make sure the policy you buy meets all your requirements and is not just the cheapest option. Remember, while cost is a factor, the main goal is to get adequate coverage.
Tips for Moms When Considering Life Insurance:
- Review Regularly: Your needs will change as your family grows or as your financial situation changes. Review your policy regularly to make sure it remains adequate.
- Honesty is important: Always be honest when filling the application forms. Any discrepancies could result in a claim being denied, which could be devastating to your family.
- Consider Upfront Costs: When calculating the amount of coverage, think about future expenses, such as university fees, weddings, and any unexpected events.
- Avoid Over-Insurance: While you want to make sure your family is covered, you also don’t want to pay for more insurance than you need.
- Named Beneficiaries: Clearly name who you want to benefit from your policy. This can simplify and speed up the payout process for your loved ones.
- Beware of Policy Add-ons: Some add-ons may not be necessary and may increase your premiums. Always check the true benefits of any additional coverage.
- Get advice: If you are unsure about anything, seek professional advice. It is better to be informed before making such an important decision.
In Conclusion
For moms, life insurance is a safety net, ensuring that your loved ones remain financially secure even in your absence. It’s a topic no one likes to think about, but being prepared can provide peace of mind and security for your family’s future. Make an informed decision by shopping around, understanding your needs, and seeking advice if necessary. And remember, the sooner you get a policy, the more likely you’ll benefit from lower premiums, making it a wise financial decision in the long run.
