Top 5 reasons to gift life insurance this Christmas

Whilst most of us will gift toys, clothing, and gadgets this Christmas, wouldn’t you give stability, peace of mind and financial protection to friends and family if you could?

No one likes to think about passing away, but it is important to consider what you may leave behind, especially if you have young children who rely on you.

That’s why life insurance is a great gift, providing reassuring peace of mind both for yourself and your loved ones.

Despite this, according to Money Marketing, it is estimated that 63% of the UK don’t have life insurance, meaning under half of this country are financially protected.

There are a variety of life insurance policies available, each better suited to protecting different aspects of our lives.

Read the article below to discover which policy may be best suited for you and how to save on your monthly premiums.

1) Protect a growing family

Thinking of starting or growing your family is an exciting time in life, that’s why it is a sensible to think about life insurance, so your partner could support the family if you were no longer around to provide.

A joint policy is favourable amongst young families as it is more affordable and will protect the remaining partner.

A joint life insurance policy covers two people under one policy and will pay out once if either person passes away during the policy term.

The pay out will either be made on the first or second death.

Not only is it affordable and requires only one application, but it can also help share assets.

So, if the worst were to happen to you or your partner, your mortgage and children’s childcare could be covered.

2) Protect your family home

Mortgages and housing payments are one of the most common financial burdens looking to be covered with life insurance.

The thought of your partner or family having to give up the family home if you aren’t around can be a hard pill to swallow.

There are types of life insurance policies suitable to help cover mortgage costs. For example:

  • Decreasing term life insurance could be suitable if you have a repayment mortgage, as the cover amount reduces throughout the term (pay out decreases).
  • Level term life insurance could be suitable if you have an interest only mortgage as it provides a fixed cover amount (pay out remains the same) throughout the policy term.

Term life insurance is a policy set to a certain duration of time (the term), meaning you are financially covered during this period.

If you had a mortgage that would take 10 years to pay off, then you could select a term life insurance policy for this time.

Although terms can have a length of up to 40 years.

It is possible to compare level term and decreasing term policies free of charge through award-winning broker Reassured.

3) Help children or grandchildren with future costs

As you get older, your financial responsibilities are likely to change.

Whether you have grown up children or even grandchildren, you may want to consider getting life cover to provide them with an inheritance or to help cover your funeral costs.

According to a SunLife report, the average funeral in 2022 costs around £3,953.

Therefore, providing a guaranteed pay out to loved ones can help take away the stress towards covering these costs.

You also may want to leave an inheritance for their future; for first houses, university/ student loans, cars or helping with their living costs.

Determining which life insurance policy is right for you will to some extend depend on your required cover amount (or sum assured).

For example, over 50 plans could be a great option as it is affordable and guaranteed acceptance (doesn’t ask medical questions), but the maximum pay out is usually up to £20,000 (depending on the insurer).

However, whole of life insurance could also be a great option as you are covered for the rest of your life (like an over 50s) but you can secure a much larger pay out.

Although this can be more expensive, if you are in good health and require that larger sum assured (can be up to up to £1,000,000) then it could still be a good option.

4) Cover inheritance tax

Inheritance tax (IHT) is a tax on your estate (an estate includes savings, property, and possessions) of someone who’s passed away.

If you don’t have life cover organised, loved ones may have to pay the large fee after you are gone.

If the estate is worth over £325,000, then you will be subject to 40% IHT on anything over this threshold.

However, writing your policy in trust can minimise inheritance tax, meaning loved ones can avoid or minimise the amount they would have to pay.

How does it work?

By writing your life insurance in trust you pass the rights of the policy over to a trustee/s to administer on your behalf.

Much like the executor of a Will.

As a result, the proceeds from your policy do not form part of your estate and therefore are not subject to IHT.

What’s more because the funds are not part of your estate, your loved ones will not have to wait for probate to be granted before the funds are released, meaning a faster payout.

For more details and guidelines regarding inheritance tax, check out the UK government website.

5) Life insurance is very affordable (Save money – premiums are cheaper the earlier you take out life insurance)

If you are a non-smoking young adult with no pre-existing health conditions, you could secure approximately £200,000 of cover for just 20p-a-day.

However, insurers calculate your premiums based on the likelihood of a future claim.

Therefore, the younger you are, the cheaper your monthly premiums are likely to be because statistically, a claim is far less likely.

Unfortunately, as we age, we are more likely to suffer from certain medical conditions and therefore insurers hike premiums to migrate the increased risk.

So why not seize the day?

Life insurance is there to protect your family in the event of an unexpected death, therefore it’s important to find the right policy that will financially support them.

By using this guide, you may consider what needs to be covered and the size of your sum assured.

Some things to consider:

  • Mortgage/ rent payments
  • Children’s future education and childcare
  • A small inheritance
  • Inheritance tax costs
  • Funeral costs
  • Charity donations
  • Everyday bills and living costs

You could also fill in a life insurance calculator to work out what you’d like to cover and how much life insurance you will ideally need.

We hope this article has provided some valuable information on value of life insurance.

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