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Life Insurance Shortfalls, How to Avoid Them and Protect Your Family

Life Insurance Shortfalls

Even if you have a Life Insurance Policy in force, are you sure you have enough to keep your family protected should the worst happen? According to a 2018 Royal London report only around 60% of UK adults with a mortgage have life cover. 11.1 million of the 14.4 million properties in home ownership are mortgaged. That’s over 4.4 million homes without sufficient cover in place.

Many think that life insurance is only needed to cover a mortgage, particularly highlighted by the fact that 65% of UK adults have no life insurance or protection cover. However, there are other situations that can also put families at risk. Below are some examples and protecting them can make the difference between comfort and hardship for those left behind.

life insurance cover for your family

YOUR CHILD'S FUTURE

In 2017/18 121 of the 123 higher education institutions with access agreements are planning to charge a maximum headline fee of £9,250. Trying to ensure that your children have the best start in life is often very important. The average debt per student at the end of 2016/17 was £16,849. You can set up a term assurance policy to run until your child leaves university. As a result, you will protect them in the event of your death and avoid substantial debt.

LIFE INSURANCE FOR BUSINESS LOANS

Often you can only draw down a business loan if life cover is already in place. However, if you do have your own business, covering any business debt can avoid hardship to the family in the event of death.  Even without loans, does the family left behind know how to run the business prior to any sale? In the event of the business owner’s death, how would the family receive monies? For a jointly owned a business a policy can avoid many issues. For example, Shareholder Protection can ensure the deceased’s family receives proper value for the shares left in that company. In the case of a business partnership, Partnership Protection can ensure the deceased’s family receives proper value for the inherited share of the partnership.

LIFE INSURANCE FOR PERSONAL DEBTS

Mortgages are probably the major reason for getting a Life Policy in the UK. Outright ownership of your family home is often a priority. However, there are many other sources of debt that could create hardship for your family in your absence.

As of October 2018, the average household in the UK had debts of £59,288. Whilst this may not seem a huge burden, life assurance to cover this can avoid hardship on death of income winner(s).

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DEATH AND TAXES

Inheritance tax and increasing funeral costs can add to your family’s burden. Although the terminology seems unduly complicated, calculating potential inheritance tax can be quite simple.  Once calculated, you can put a simple life cover policy in place to pay the tax bill when it falls due. That policy can be arranged to increase or decrease each year to reflect appreciation of your assets, or gifts being made and tax covered during the run off period.

Disclaimers:

The Financial Conduct Authority does not regulate Inheritance Tax Planning advice.

Life Cover (non-investment) and income protection. The plan will have no cash value at any time, and will cease at the end of the term. If you do not maintain premiums, then cover will lapse.

Call Be Financially Secure for more details

To safeguard your family’s financial security call Be Financially Secure on 01273 495446 or click here.

All sources available at www.bfsco.com/stats

Secure your family’s future with the right trust.

Trusts

Trusts, how do they work? Most people know of trusts but not how they can benefit by one. On your death, instead of paying the sum assured from your life policy direct to your estate, the payment goes into trust. This means that the proceeds should not be liable for inheritance tax. Additionally, it is possible to release funds to your family a lot quicker because they are not subject to probate.

In the event of death, the trustee(s), trusted by the settlor to ensure that funds go to the beneficiaries specified, receive the pay-out. The settlor is normally the owner of the policy and invariably the life assured. The trustee(s) are persons picked by the settlor to ensure that they deal with the trust correctly. The beneficiaries are those who will benefit from the trust.

There are many different variations of trust and its correct choice is important. Choose the wrong trust and you could end up with monies going to the taxman. Looking at the main types:

Absolute Vs Flexible

Simply put, a trust can be absolute or flexible. Their names sum them up pretty well. In the case of an absolute, (or bare), trust, once it is in place it cannot be changed. It is an absolute agreement which is set in stone. On the other hand, a flexible, (or discretionary), trust is just that, flexible. The details can be changed at any time, as long as there is an agreement between the settlor and all trustees listed in the trust.

Trusts
Trusts

Gift or Split Trusts

The purpose of any life insurance policy is often to provide a ‘gift’ from you to your family after you have died. You may also have critical illness cover with some policies. In the event of you suffering a critical illness, you may need the money rather than gifting it into trust. In this case, you would split the trust to retain any proceeds from a critical illness claim. At the same time, you would gift any life pay-out. Some policies will also pay out in the event of a terminal illness. Some clients prefer this is gifted to the trust while some prefer to retain the monies. This will allow for distribution of monies prior to death, (but there can be tax consequences).

Business Trusts

 

There are many types of business trust, from shareholder and partnership protection to key person to relevant life.

Shareholder protection

Shareholder protection will usually pay-out the sum assured to the surviving shareholders. This will allow them to buy out the deceased shareholding from the family. This can provide continuity of the company. This will also ensure that the family of the deceased shareholder receives a pre-agreed amount for their shares.

Partnership protection

Partnership protection will usually pay-out the sum assured to the surviving partner(s). This will allow them to buy out the deceased partner’s interest in the business from their family. Again, this can provide continuity of the business. It will also ensure the family of the deceased partner receives a pre-agreed amount for their share of the business.

Key person protection

Key person protection will provide a pay-out to the company in the event of the death of an employee or shareholder who is integral to the company. The monies received by the company are used, often, to help replace that member of staff.

Relevant Life Protection

The settlor is a company, normally the employer of the life assured for a relevant life trust. The life assured is usually a director/shareholder but can be an employee. With Relevant Life policies, the life assured chooses additional trustees and also chooses who he/she wants as beneficiaries. This can be the life assured’s spouse and children. In this way, your family will benefit in the event of your death. There are also substantial tax benefits for arranging life cover under Relevant Life policies.

There are many more variations to trusts than those listed above and other benefits for arranging business and Relevant Life policies. At Be Financially Secure, we can make sure that you have the right level of advice. We are totally independent protection specialists and offer independent advice.

Disclaimers:

The Financial Conduct Authority does not regulate Inheritance Tax Planning advice.

Life Cover (non-investment) and income protection. The plan will have no cash value at any time, and will cease at the end of the term. If you do not maintain premiums, then cover will lapse.

To safeguard your family’s financial security call Be Financially Secure on 01273 495446 or click here

All sources available at www.bfsco.com/stats

Image courtesy of www.pixabay.com

 

Trust Family Protection