In the circumstances you describe, the only real consideration will be whether or not your...read more
According to research from insurer Scottish Widows, an astonishing ‘60% of women with a dependent child have no life insurance, while only 13% have a critical illness policy’.
As a result of the COVID-19 pandemic, the past 18 months have been extremely challenging for thousands of UK mums, both from an emotional perspective but also from a financial one, with many jobs lost or incomes affected.
Life insurance is easy to put off for another day. Often a significant life event, such as having a child, purchasing your first home, getting married or losing a loved one, is the trigger for people to first consider taking out a policy.
However, for many the impact of COVID has also encouraged them to consider how their loved ones would cope financially if they were no longer around to provide.
It is also important to consider the value of a stay-at-home mum. Although they may not earn a tangible income think about all the jobs they fulfil and the reality of how you would fill this void. A study by Bidvine suggested that a stay-at-home parents salary would to be worth £80,000 on average if they were paid for all the tasks they undertook.
This has led to a surge of interest in life insurance, as people look for a financial safety blanket which could pay the mortgage, meet family living costs, pay for childcare and/or leave an inheritance.
Research from award-winning insurer VitalityLife suggests “over a third of people said that the pandemic had made them more aware of the need for life insurance, with the number rising to over half for those aged between 25 and 34.”
But how can mums ensure they get the right life insurance to protect their nearest and dearest, at the best available price?
We asked Reassured, the UK’s largest life insurance broker, to help answer the key questions.
Somewhat surprisingly, to date, the pandemic has not had a major effect on your ability to secure life insurance cover. Insurers are still paying out on claims, the cost of premiums have been largely unaffected, and applications are being accepted.
In fact, Legal & General paid out a record 43 claims every single day in the UK during 2020, totalling more than £763m with 15,855 families benefiting from an average pay out of £48,186.
The most significant change in the industry is to the application process, with applicants now being asked a series of COVID-related questions. However, as long as you do not have COVID-19 at the point of application you should have no problems being accepted onto a policy.
Generally speaking, the more cover you take out (known as the sum assured), the higher your monthly premium, so it’s a good idea to take the time to accurately calculate the level of cover you require to meet your unique needs.
This will help ensure you are neither under-covered, therefore leaving your loved ones financially vulnerable, or over-covered and therefore unnecessarily paying for more than you need.
Think about your key financial responsibilities;
Lastly, factor in whether you receive any financial protection through your employment, such as a death in service benefit. Although this benefit is unlikely to provide sufficient funds to clear a mortgage debt you could use the proceeds to offset the level of personal cover you need, (saving you money).
You may or may not know but there are many different policy options available, each better suited to covering different aspects of your life.
So, take the time to consider the different policy options and the associated costs.
For example, decreasing term cover is generally the most affordable option and is well suited to covering a repayment mortgage. Here the level of the payout reduces over the lifetime of the policy term, which can be set to mirror your declining mortgage debt.
In contrast, if you require a fixed payout sum to clear an interest-only mortgage but also provide an inheritance, then a level term policy may be better suited to your needs.
Alternatively, if you only need to protect your income and nothing else, then income protection insurance may be a good option.
Regardless of your specific needs rest assured there is a policy type for you. An FCA regulated insurance broker could help guide you if you require additional support.
The longer your policy term, the greater the probability of a claim/payout, therefore this can hike the cost of your monthly premiums.
Therefore, take the time to consider how long you need life insurance cover for.
The cost of life insurance is calculated based on the level of risk you pose to the insurer. The greater the likelihood of a claim, the higher your premium will be.
As a result, your age at the point of application is one of the most influential cost factors; generally, the younger you are, the cheaper your premium. For example, someone in there 20s could secure approximately £200,000 of life insurance for just 20p-a-day. Your medical history, smoking status and BMI/weight are also key cost factors.
As mentioned above, people often only consider taking our life cover after a major life event, such as having a child or purchasing a property. However, if you can be proactive you could lock in a super-low premium for an extended policy term and secure really affordable cover that protects you as your life evolves.
If you are a married mum or in a committed relationship, you may wonder whether it is better to take out a joint policy or individual policies?
The answer is, it depends.
The main benefit of a joint life insurance policy is that it is approximately 25% cheaper compared to paying premiums on two single policies. So, if you’re on a tight budget this may be a good option.
However, a joint policy only ever provides one payout before the cover expires, whereas if you had two single policies this could result in two separate payouts and potentially double the coverage. This extra financial protection may be important, especially if you have young children who depend on you.
Also, when a joint policy elapses, either because the term has expired or a payout has been issued, it leaves the surviving partner unprotected at a time when they are older and therefore new cover will be more expensive.
Finally, a joint policy cannot normally be divided in two if the relationship breaks down and so individual policies, if you can afford it, are much more future proof.
Currently in the UK inheritance tax is set at 40% on anything over the £325,000 threshold. However, there is a way of ensuring the proceeds from your life insurance pay out are not subjected to inheritance tax – and it’s completely free.
By writing your life insurance in trust the payout avoids forming part of your estate and therefore is not subject to 40% inheritance tax. You effectively sign over the rights of the policy to a trustee/s, much like the executor of a Will, to administer on your behalf.
What’s more, your loved ones will not need to wait for probate to be granted either, resulting in the funds being released faster.
Please note, inheritance tax won’t be applicable if you leave everything behind to your spouse, although it may be for single or widowed mums.
There are multiple ways in which you can purchase life insurance and using a comparison website or a broker are popular methods. However, insurers would rather you bought directly from them, and they use free welcome gifts as an incentive.
Usually this takes the form of a gift card from Amazon, M&S or Argus, ranging in value from £50 to £120. The higher your monthly premium, the greater the value of the gift card you will be eligible for.
Whilst we all like to win a freebie, it is important to consider that the term of a life insurance policy can be up to 40 years. Therefore, it is obvious that the most important long-term consideration should be the cost of your monthly premium, as a small saving each month can add up to a significant sum over the lifetime of a policy, that dwarfs the value of the free gift.
The last 18 months have shown just how fragile life can be and unfortunately many lives have been lost prematurely and families left devastated.
Ensuring you have adequate life insurance in place can at least provide peace of mind that your family will be provisioned for financially if you are no longer around.
This could mean your loved ones can remain in their family home without any money worries and their current quality of life maintained, limiting the upheaval and disruption to a minimum at a stressful time.
The good news is life insurance is for most people a very affordable option and COVID should not impact your ability to secure cover or the cost of your premiums.
If you are a mum without any life insurance in place, why not seize the day and secure suitable cover today? Allowing you to get on with the important things in life, like enjoying your family, safe in the knowledge they are financially secure whatever the future may hold.