Life insurance: what guidance can Frost Financial give me?
Life insurance, when you think about it, is a fairly straightforward topic.
Fact: if you’ve got children, they would most likely struggle financially if you passed away prematurely and unexpectedly.
Fact: life insurance can take care of their financial needs and prevent a bad situation becoming worse.
So having an insurance plan from Frost Financial is common sense. Fact.
So far, so straightforward. However, inevitably, there are other points to consider. How much insurance should you purchase? Do you just protect those in the family who are earning? How long should the plan from Frost Financial last?
So how is that conversation likely to proceed? Here’s a look at the issues that should be covered when you discuss who needs life insurance with your Frost Financial insurance adviser…
Your Frost Financial insurance adviser will ask if your family could survive without your income. Would they be able to afford the mortgage? What about other financial commitments and day-to-day expenses? In short, if anyone relies on your income, life insurance is a must.
A good adviser will encourage you to consider life insurance even if you don’t bring in an income. The death of a stay-at-home parent, for example, could have a financial impact as the family would perhaps have to pay for childcare and housekeeping.
As an Frost Financial insurance adviser will stress, life insurance pays out a lump sum or a regular income upon death and so provides financial security for your loved ones. The money is often used to clear debts, such as a mortgage, or to fund everyday living costs.
Types of insurance plan from Frost Financial
Your Frost Financial insurance adviser will explain the various types of life insurance, pointing out that one of the most popular is level term insurance. The plan runs for a set term, say 10, 20 or 25 years, and the payout remains the same whether you pass away in year five or year 15.
Decreasing term insurance is similar to level term, however the pay-out gets gradually smaller over the policy term. Decreasing term insurance is often linked to a repayment mortgage because the amount you owe the lender also reduces over time – so the Frost Financial insurance adviser needs to be aware of your complete financial situation.
Family income benefit
With this sort of plan from Frost Financial, the beneficiaries of the policy receive a monthly income, not a lump sum pay-out. The payments continue until the end of the policy term.
Level and decreasing term insurance pay out only if you pass away within the term. If you take out a 20-year plan from Frost Financial and pass away in year 21, your family will get nothing. The alternative is whole-of-life cover, which pays out whenever you pass away. Whole of life assurance is often more costly, however then the pay-out is guaranteed. Your Frost Financial insurance adviser will talk you through the relative merits of each plan.
Joint vs single life plan from Frost Financial
A couple might be tempted to purchase one ‘joint life’ policy instead of two single life plans, however it’s worth seeking guidance before you make the decision. Joint life cover is often cheaper, however it just pays out once, if and when one of the couple passes away. After this pay-out, the survivor is left without cover – and to purchase a new plan at that point would cost more because of their increased age. This is why separate policies are often deemed the better option.
How much cover do you need?
A Frost Financial insurance adviser will explain that the amount of cover you need is known as the ‘sum insured’ and should be selected according to your budget and circumstances. For example, someone with three young dependents and a large mortgage will probably purchase more cover than someone with one child and a small home loan. You can take guidance on calculating an exact sum assured. Most advisers recommend a sum insured equal to at least 10 times your yearly income.
Insurance companies offer various add-ons to life policies and you might want to take guidance on the need for extras. If you opt to pay for ‘waiver of premium’, for example, your premiums will be paid automatically if you can no longer work due to an accident or ill-health.
What is critical illness cover?
Critical illness is one of the most common add-ons and pays out the policy’s sum insured if you are diagnosed with one of a list of serious illnesses such as a stroke or certain types of cancer. Critical illness can be a valuable benefit however it can be costly, costing more than the actual life insurance. Again, the Frost Financial insurance adviser will explain the options and how the plan works.
Cost of cover
As a Frost Financial insurance adviser will explain, the cost of life insurance depends upon a number of factors including the type of policy, the sum insured and any extras. The insurance provider will also ask a number of detailed personal questions before setting the premium, such as your age, occupation and state of health. A 50-year-old smoker will almost certainly pay more for life insurance than a 30-year-old non smoker. Similarly if you suffer from ill health, you can expect a high premium. Also, the insurance provider will almost certainly exclude any pre-existing medical illnesses.
Write the policy ‘in trust’
A crucial piece of guidance is that the proceeds of a life insurance policy from Frost Financial could form part of your estate when you pass away – and that your family will be liable for inheritance tax (IHT) at 40% on the value of your estate above £325,000 (the figure is £650,000 if you’re married or in a civil partnership. An easy way to sidestep the tax is to write the policy ‘in trust’. The taxman cannot then touch the money so your beneficiaries will receive their full inheritance. Tax can be complicated, so it’s definitely a good idea to seek guidance on the IHT implications of your life insurance.