Most people start families in their 20s or 30s and this is also the first time they think about family protection, life insurance and making sure that their loved ones are taken care of if they die.
Once this life cover is purchased, it is common to forget all about it and only review it every couple of years when a review of ones finances is due.
Decades later, when your circumstances have changed and your family has grown up, it might be tempting to question whether a life insurance policy is necessary at all.
However, cancelling a policy might involve hidden costs. This blog post is a quick guide to the possible pitfalls of cancelling your policy.
If your children are over the age of 18 or a substantial part of the mortgage is paid off, there might be little reason to keep your policy.
It seems rather obvious to say, but if you cancel your policy the first thing you will lose is the cover it offers.
If you need to take out a future policy for any reason, you will find it far more expensive in terms of monthly payments than the original agreement.
Some policies are designed to pay for the cost of schooling and university education of children if a parent dies, but this might seem redundant if your children are now grown up and have left home.
You might also find that you still need a life insurance policy as grandchildren could become dependents and the financial future of your partner might be in jeopardy if you pass away.
It might be that if you died over the age of 50, your partner could still be several years away from retirement age, and may therefore be dependent on an additional source of income that a policy could provide.
What are the savings?
If you cancel your life insurance policy you will save the cost of the monthly contributions and in today’s economic climate this could well be ready cash you can’t do without.
However, whilst you might be making savings to your financial plan in the short term, the financial risks to your family dramatically increase if you were to unexpectedly pass away.
Life insurance in many ways is a far wiser investment for families with less disposable cash than others, as the financial pressures on wealthier families in the event of bereavement will be lesser.
Lower Insurance Premiums
Cancelling a policy outright is not the only option open to policyholders facing financial difficulties.
It might also be possible to agree with your policy provider to pay a reduced contribution (see ‘Other Options’ 3rd sub heading) in return for a lower level of cover for a period of time until your financial situation improves.
Most UK life insurance policies have no charge for cancellation, but if you do cancel and then re-apply for cover, the increased cost of a new policy will act as an unofficial penalty.
Protecting My Family
One possible way of spreading the costs of life insurance is to look at the cover both you and your partner have.
When you initially took out life insurance cover, you might have decided with your partner to take out a joint policy. Normally they cost less than two separate policies and are a lot easier to set up.
However, if you have two separate policies, it might be worth exploring whether taking out joint cover is more cost effective.
Much of this will depend on the age and relative health of both policyholders, but the good news is that nearly all over 50s are accepted on to new life insurance policies, (see ‘Guaranteed Acceptance’) without the inconvenience of a medical.
There is one topic that no one likes to think about – death. And yet, it is something that we must prepare ourselves for in order to take care of our loved ones and ensure family protection.
Making plans for the end of life is a vital task and one that, if not dealt with by each of us, falls to our families and next of kin to arrange.
There are two main tasks that everyone with dependents must undertake in order to protect their loved ones, arranging life insurance and writing a will. This article is a quick guide to help you explore the options available to you.
Why do I need life insurance?
Life insurance is a policy that is taken out to pay off any major expenses such as mortgages, outstanding debts or university fees for children if you die unexpectedly. There are two main types of policy, term insurance and whole life cover.
Term insurance is the more basic of the two types of cover and insures a person for a certain period of time and up to a certain value.
This type of cover will only pay out if you die within the specified period of the policy, and if you live longer, the premiums that you have paid into the scheme are non refundable.
You can take out decreasing term cover, meaning that over the years, the contributions you pay into the scheme lessen.
This makes sense as you pay off your mortgage month by month, the lump sum your loved ones would need if you unexpectedly died would be smaller. It also means that the policy will become more affordable over time.
Whole Life Policies
Unlike term insurance, whole life policies are not limited by time, they only expire when you do. As with the other types of policy, they pay out when you die, but you do not have to guess when that might be.
Generally, these policies cost more, but they offer the you more flexibility and don’t leave loved ones in serious financial hardship if you die following the policy’s expiry.
Why should I make a will?
With the advent of the internet, making or changing a will has become quicker and easier than ever before. If you have ever asked ‘How do I make a will?’, it is now easier and more straight forward to do than it has ever been.
A will is a simple legal document that states what should happen to your money and property after your death. If you die without one, your estate will be legally termed intestate.
This means that a loved one will have to apply for probate – the right to be the executor of the estate and decide what happens to your wealth.
There are legal guidelines for executors on how wealth must be shared out in this instance, but without your own will, you cannot be sure that your wishes will be carried out.
What could happen if I don’t make a will?
Writing a will can also limit the amount on inheritance tax that you are exposed to, meaning that if you die without one, the tax man might be able to take a considerable part of your estate.
Despite the importance of writing a will in order to protect your wealth when you die, a 2014 survey revealed that only 48 percent of adults in the UK have drawn one up.
This lack of planning might partly be due to the fact that people generally tend to avoid considering their own mortality. It might also be due to a lack of quality information about the problems dying intestate can cause.
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