Life Insurance can give you peace of mind for your family’s future
It wasn’t until our first child was born that something began to really bother us. It wasn’t just me and my husband anymore, living day to day. We had another human being to think about 24/7, to be responsible for, to nurture, to love, to teach and so on. I was in a good job, my husband ran a successful business but we had spent years getting out of debt and had just put all our savings into buying our first property. What would happen to our son if something happened to us? What would happen to my husband and son if something happened to me? What would I do if something happened to my husband?
What do I actually mean by “what would I do?”
Of course, aside from the devastation of such an event happening, the more practical aspects should be considered, and often these things aren’t even thought about let alone discussed and prepared for.
- How would our income change if one of us is no longer here?
- How would I manage with the children and childcare costs if i had to work full time?
- Would I want to work full time?
- How would I afford our living costs?
- Would I still be eligible for a mortgage or re-mortgage on my own?
- How would I afford to give our children financial security as they grow older, pay for university or their wedding?
These are the questions we had to consider when we started talking to our financial adviser about life insurance. A popular recommendation is to get enough cover to pay off a mortgage and often life insurance is something purchased as part of getting a mortgage. When you consider life insurance because of other life events, however, it prompts different questions.
What Life Insurance will do for us:
Our decision making process for life insurance revolved mostly around our children. What life did we want them to have after we’ve gone? Of course at different stages of their lives, this will mean different things, which made our decision process quite complicated!
In the end we opted for Life Insurance to cater for the following:
Single life insurance policies for me and my husband
If one of us goes before the other, the remaining one still has a policy. A joint policy would terminate on death of one partner and the remaining partner would need new life insurance, at a more costly price. Single polices are slightly more expensive but you also get 2 lump sums rather than 1.
Level Cover
So that we were always guaranteed a big lump sum – we planned on climbing the property ladder and wanted to cover ourselves for s future larger mortgage than the one we had at the time.
Large Lump Sums
We wanted enough cover to pay off our mortgage and to leave a lump sum remaining to cover living costs for a few years. This would reduce the risk of not being able to afford living costs if income was greatly affected – if the remaining partner couldn’t work anymore (or didn’t want to work anymore, especially if our children were young and not in full time education).
Since buying our life insurance and become better financially educated, I realise now that we should have got a cover amount to the value of a sum we could invest and use the investment return as monthly passive income (I’ll write more about this later).
Putting life insurance policies into a trust
Putting life insurance policies into a trust means that the money is protected from inheritance tax and also for example from being accessed by a minor. The trust would mature at the age of 18 (or your specification). For planning for our children’s future, we would want to allocate a sum to the new guardians and leave the rest in a trust until our children became adults.
As you can see, there is a lot more to consider than simply getting life insurance to cover a mortgage. The most important thing to me and my husband is that we now feel comfortable that should the worst happen, at least financially, our family will be alright.
