Our Insurance Broker for North London, Cheshunt, Waltham Abbey and Hertford, Ellie Newman explains the benefits of putting in place protection cover for your dependents.

While writing this article over the Christmas period one thing has become clear to me... Nothing is more important than family. If you want to protect your family call our financial advisers now on 01707 872000. We offer a free initial consultation to discuss your protection requirements.

How to protect your family this Christmas

Christmas is a popular time for families to come together and enjoy each other’s company. During this period nothing else seems to matter which is why I have written this article about protection. 

The majority of protection policies are not actually for you and they are really for your family to make sure they are well looked after if the worst was to happen.

What is life cover and why should you have it?

The cheapest and simplest form of protection cover is life cover. This policy couldn’t be more straightforward, if you die within the term of the policy a lump sum you have selected will be paid to whoever you have nominated it to be paid to. Usually this would be your family, but you can nominate whoever you would like to inherit the proceeds by filling out a trust form. 

Now life policies get more expensive the older you are when you take them out, the longer the term you require, and the higher amount of cover needed. Before you take out life cover your insurer will also need to know relevant facts about your medical status so if you are a smoker or have any adverse medical problems this will affect the price of the policy. 

How much does life cover cost?

Someone who is a 24-year old non-smoker requiring £100,000 life cover for the next 30 years could pay as little as £15 per month and someone who is a 55-year old smoker requiring cover of £500,000 for the next 20 years with a history of heart problems could pay £90 per month. Now these are just illustrative approximations but I am trying to show how the premium you pay is based on your scenario, so if you’re a middle-aged smoker with health problems it is no good comparing your premium to your fit and active, non-smoking 22-year old son. 

Life cover is for your dependents – do you require it?

Ellie Newman Insurance Broker in North London, Cheshunt, Waltham Abbey, Hertford & Hertfordshire said:

‘The key thing to remember with life cover is that it is not for you. If you don’t have any dependents or family members then you don’t need life cover, but if you do have dependents, I would recommend taking financial advice and reviewing the decision. Our qualified financial advisers can help you review your expenditure, so you re-consider your spending priorities. Do you really need your pay TV package, could you afford to go out less to pay for the life cover? I see far too many individuals who say they can’t afford a life cover policy for £40 per month which helps negate any financial consequences as a result of their death but are happy to keep their subscription for Pay TV instead!’

What type of life cover is available?

There are different life cover policies available and different reasons for taking life cover. 

Term Life Assurance

The cheapest form of life cover covers repayment mortgages and is a decreasing term life assurance. The premiums are very cheap and for this type of policy the amount of cover and the pay-out goes down as the mortgage reduce, as this type of cover is purely used to pay off repayment mortgages. 

Level Term Assurance

Level term assurance will be higher priced than the decreasing term mortgage option but for many people it may be a better value for money policy as the amount of cover does not go down and stays the same throughout the policy term. This cover can be used to cover interest only mortgages or used as family protection to leave your partner or dependent children a sum of money, so they are not financially affected by your death. 

Whole of life policy

The whole of life policy is guaranteed to pay out on your death but is obviously the most expensive option due to the guarantee. This type of policy is usually used for funeral planning or to mitigate inheritance tax. 

Thomas Oliver financial advisers recommend protecting your mortgage and your family

Overall, we normally recommend that the majority of people should have both the decreasing term assurance to protect their mortgage and the level term assurance to protect their family, but unfortunately some people have neither and most people will have protected their mortgage but not their family.  

Why is it important to complete a trust form if you have a life policy?

The final element to a life policy is the trust document. A trust document is a very simple document that allows the life provider to know exactly who the pay-out goes to, so the pay-out can be transferred as quickly as possible on the death of the policyholder. This also means this money doesn’t form part of the estate and therefore is not liable to inheritance tax. Furthermore, you can state any additional trustees, who are people that can oversee the policy and make amendments in case you weren’t mentally capable (usually your spouse or parents). 

‘Ellie Newman Insurance Broker in North London, Cheshunt, Waltham Abbey, Hertford & Hertfordshire continued:

‘What I find quite shocking is that of the consumers that do have life policies in place many of them have not put the policy into trust. This means their family will have to go through a lengthy process to obtain the money if they died, as it would form part of their estate and could incur 40% inheritance tax. Overall, we have reviewed why you need life cover, the different life cover policies available and the importance of trusts. Please remember life cover is only one element of the available protection policies but it is the only one that actually is of no use to you but is critical for your family. You can see there is so much that needs to be accounted for and advised on when discussing life cover. Please also remember this is the simplest form of protection on offer and I have not even mentioned the additional benefits such as wavier of premium or total permanent disability.’

In summary…

The financial planning team at Thomas Oliver understand the complexities involved when deciding what type of protection cover you require. We can work with you to agree how much protection cover and what additional benefits you may need. We make sure that you understand every step of the process, so we get the right cover that’s personalised for you and your family. We will set up the policy with the provider and ensure that all the paperwork is correctly completed and make sure your policy is written in trust. If you are looking to arrange a protection policy, please contact our Thomas Oliver financial advisers now on 01707 872000. We can discuss your protection policies over the phone, and we offer you a free initial consultation.