Death is not something that most of us like to contemplate, whatever our age, but as we get older, there comes time when we need to consider our loved ones and how they’ll cope when we’re no longer around. According to the BBC, the average cost of death in the UK last year, including funeral and medical expenses, was in excess of 7,000. Aside from affording you the peace of mind of knowing that your loved ones will be amply catered for, even in unforeseen circumstances, life insurance offers numerous other benefits, some of which may not be immediately apparent.
Life Insurance Cover.
Obviously, life insurance covers mortgage loans and other loans that you take out during your lifetime, so they don’t need to be repaid by your loved ones. While financial support won’t compensate your loved ones for your loss, it will mean that they don’t need to face the additional burden of repaying your debts at a difficult time.
Some life insurance policies also include what is known as critical or terminal illness benefit, whereby the provider pays out the sum insured, either as a lump sum or as monthly payments, if you’re diagnosed with a critical or terminal illness and cannot work. You do need to read the small print, however, because what constitutes a critical or terminal illness varies from policy to policy. Not all forms of cancer, for example, which directly affects over 300,000 people each year in the UK, are covered.
Profitable, Safe Investment.
Furthermore, life insurance is a long-term contract, whereby you pay a fixed monthly amount over a period of time. This encourages regular saving, allows you to build up a substantial capital sum and allows the life insurance provider to focus on long-term, rather than short-term, returns from your policy. Strict regulation of the life insurance sector by the Financial Services Authority (FSA) and a well defined code of conduct for providers mean that investment in life insurance is not only profitable, but safe. With the exception of any fees or charges you pay to an insurance broker, most of your money goes directly to your life insurance provider. If your provider goes into default, you are protected by the Financial Services Compensation Scheme (FSCS), in the same way as if you invested your money in a bank.
Tax Benefits.
Many life insurance policies provide tax benefits at the point of entry and the point of exit. Under current tax legislation in the UK, life insurance claims, including critical and terminal illness claims, are usually exempt from capital gains tax and income tax. They may, however, be subject to inheritance tax, but even this can be avoided by putting your life insurance policy in trust. All this means is that you appoint one or more people, known as trustees, to receive your life insurance payout. This effectively removes the payout from your estate, meaning that trustees receive their money quickly and easily, without having to pay inheritance tax.
