Life insurance is a way of providing for your family’s financial future upon your death. This all sounds very positive, and something surely everyone with a family would want to do, but how many people actually have life insurance in place? And importantly how many people have the correct level of cover?
The Association of British Insurers (ABI) have published data showing of the 26.7 million households in the UK in 2014, 20.4 million had contents insurance and 20.1 million had motor insurance. But only 0.6 million had term life insurance. That’s less than 3% of all UK households!
So why are the majority of people willing to insure their personal belongings in the home (such as their prized 50’’ Smart TV) but not put in place long term insurance to secure their family’s financial future should the worst happen? Some possible reasons include people thinking it will happen to someone else, and not them. People don’t like discussing the topic of dying and so give the subject a swerve. Some people may think their death-in-service cover provided by their employer is adequate.
My view is that insuring against something that is high frequency and low impact, such as theft or damage to your mobile phone, can be expensive and pointless. But it makes sense to insure the high impact and low frequency type of risk, such as premature death.
Most employers these days offer death-in-service benefits which might pay out, say, four or six times an employee’s basic salary. Some employers may offer more generous cover of say ten times salary, but the big question is – is that enough? One might think yes, if it covers your outstanding mortgage, then happy days. But that may not be enough. How are your family going to replace lost income for the rest of their lives, and maintain their normal standing of living without your income? Even with the family home debt free, will they have sufficient income or capital to continue to lead the life they have been accustomed to?
Perhaps now you are starting to see the merits of life insurance, but how much does it cost? The answer is less than you might think. Let’s take a married couple, both aged 40, in good health (and non-smokers) with a need for £500,000 of life insurance, which is in place up until their proposed retirement age (for this example to age 60). The monthly cost could be as low as £35. In this example, the monthly cost is guaranteed to stay the same and not increase year-on-year which can assist with budgeting.
£500,000 could be invested to provide an income, and using what I think are prudent assumptions this could replace an after-tax income of about £15,000-£20,000 per annum.
Therefore, for the princely sum of £35 per month, the individuals in this scenario might be able to provide full financial security for their family, should the worst happen, and importantly provide peace of mind. What would you need to forgo to afford this £35 per month; maybe your next takeaway on a Friday night, is that a worthwhile price for financial security for your family?
At Wingate, we offer whole of market advice, and can help you secure the most competitive life insurance policy across the market, and importantly provide you with highly personalised advice to ensure the level and type of cover is suitable and appropriate for your individual circumstances.