5 Reasons You Might Need Life Insurance - UAM

21st Oct 2021

5 reasons you might need life insurance

Posted in:

Life insurance can be one of those investments that you never get round to exploring.

Many people underestimate just how important and valuable a life insurance policy can be. The problem is exasperated by the very human tendency to avoid talking or even thinking about death.

If you’re wondering if it’s worth the money, here are 5 reasons you might need it.

1. It can protect your dependents

Life insurance

If you have a partner or children who rely on your earnings, life insurance can protect them in the event of your death. While some pay a lump sum, others provide regular income payments after you pass away. 

However, be careful not to over-insure one partner. Many people take out costly life insurance policies on the higher earner without considering what will happen if the person who earns less passes away. 

Could the rest of the family get by on one income? If one partner does most of the childcare and passes away, is there anyone who can help with these responsibilities, or will someone need to be hired?

There’s so much to think about and it’s not just about the sums. In some cases, it might be wise to insure both partners with the help of a joint life insurance policy.

2. It can protect the family home

If you’d like to leave the family home to loved ones but you die before your mortgage has been paid off, a plan must be put in place to repay the remaining debt.

Some people may choose to sell the property to pay the lender, but those who wish to keep the family home must make an arrangement with the bank to avoid repossession.

This is where life insurance steps in. Life insurance will protect your loved ones by making sure any outstanding financial commitments are met.

The exact amount of coverage you’ll get will depend on your chosen product and provider, but some policies will continue to pay your mortgage until the loan is repaid in full. 

Decreasing cover life insurance can be ideal for those with a repayment mortgage. The longer the cover is in place, the less is paid out. The monthly premiums on this type of policy are usually lower than others.

Meanwhile, level-term life insurance may be ideal for those with an interest-only mortgage. In this case, pay-outs are fixed, and the policy is in place for a predetermined amount of time.

The benefit of this type of cover is that the pay-out is the same no matter how far into the policy you pass away.

3. Buying a house with someone you’re not married to carries some risk

It’s becoming increasingly common for couples to buy a house without getting married first.

Properties have become so expensive that many people find themselves having to choose between their dream home or dream wedding and for many, property wins the coin toss.

Although this can be a sensible decision, many couples are unaware of the legal implications.

If one person was to pass away, their partner wouldn’t have the same rights as couples who are married or in a civil partnership.

Many people assume they’d automatically inherit their partner’s share of the property, but in reality, this would only happen if there was a will.

Without a will, the late partner’s share would be inherited by the immediate family.

Life insurance could also play an important role if the surviving partner was unable to keep up with their mortgage repayments alone.

yachties guide to financial planning

4. It can relieve the burden of inheritance tax

With smart financial planning and a good understanding of the multitude of inheritance tax rules, it’s often possible to reduce the amount of tax paid on your estate when you pass away.

Some people take out life insurance policies to cover the tax bill so that their home, investments, savings and personal belongings can all be passed to their loved ones without the taxman interfering.

In some cases, you may decide to put the insurance policy into a trust. This will mean that rather than the assets belonging to you, they belong to the trust and are then exempt from inheritance tax.

Trusts aren’t a financial decision to be taken lightly, thanks to an abundance of legal implications. For example, once you place your policy in a trust, this isn’t a decision you can easily undo.

By talking your options through with your financial adviser, you can be sure it’s the most suitable option for you.

5. Death-in-service cover isn’t always enough

If your employer offers death-in-service cover, you might assume you don’t need life insurance.

Death-in-service policies tend to pay out a tax-free sum if an employee dies while still working for the company.

The amount paid out can sometimes be as much as four times the person’s salary, but it’s surprising how quickly this money can be used by those who depended on their late loved one.

Life insurance can often be more rewarding, sometimes offering up to 10 times the policy holder’s annual salary.

So, is it a good idea to make the most of both options? This is something to discuss with your financial adviser.

They’ll be able to calculate whether it’s wise to invest in a generous life insurance package when a death-in-service policy is already available.

When might you not need life insurance?

If you have no dependents, life insurance might not be the best use of your money. Your mortgage will be settled when your home is sold after your death.

However, if you want to leave your home to a friend and there’s still mortgage debt left when you die, life insurance may be something to discuss with your adviser.

If you’re elderly and your children no longer rely on you financially, a life insurance policy might not be necessary. It’s important to draw up a will and plan ahead for inheritance tax though.

Once you reach 74, it can become harder to find life insurance policies that will cover you. At this stage, funeral insurance might be a suitable option.

As you can see, life insurance can have numerous benefits no matter what stage of your life you’re at. Death might not be pleasant to think about but by preparing for the worst, we can minimise the impact on our loved ones.

This communication is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity.


5 reasons you might need life insurance