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What would happen to your loved ones and your house if something was to happen to you?
Shockingly, research from insurer Direct Line has found that 63% of people in the UK do not hold a life insurance policy. So, that means almost two-thirds of people have no protection in place for their loved ones if the worst was to happen to them.
Without life insurance in place, anyone you leave behind could be left with financial worries at what will already be a distressing time.
Analysis of research by MoneySupermarket, published by FTAdviser, highlights the reasons that people are not taking out cover – and it seems to be mainly due to some common misconceptions surrounding protection.
Read on to discover some of these myths and why you shouldn’t necessarily believe them.
“Policies are too expensive”
More than 40% of the people interviewed for the MoneySupermarket survey believed that taking out life insurance is too expensive.
While factors such as age, lifestyle, and cover chosen will affect the price, many people seem unaware that life insurance policies can start from £5 a month – less than many entertainment streaming services.
Indeed, the research revealed that 71% of households pay for a monthly subscription service – twice as many as buy life cover.
“Insurers never pay out”
Many people don’t take out protection in the mistaken belief that insurers do all they can to avoid paying a claim. However, the truth is very different.
Figures from the Association of British Insurers (ABI) show that 98% of all life insurance claims were paid out in 2021. This equates to £3.9 million in claims being paid out throughout 2021, supporting bereaved families with an average payout of £80,485.
As well as insurers paying the vast majority of life insurance claims, they also paid more than 91% of critical illness cover claims.
So, if you believe your insurers will try and get out of paying a claim, think again. Generally, the only time they wouldn’t pay a claim was if you hadn’t kept your premiums up to date, or if you had not disclosed important information at the time you applied for cover.
“Thinking about your mortality is depressing”
No one likes the idea of thinking about their demise, never mind discussing it and identifying what you would like to happen in the event of it.
The MoneySupermarket survey identifies that 13% of people haven’t taken out life insurance due to this reason.
While it may be uncomfortable, thinking about your death and preparing for the worst will help to protect your loved ones.
5 key reasons why you should invest in life insurance
Even though most people in the UK have yet to protect their families by investing in life insurance, 60% of households from the Direct Line research agree it could be beneficial.
Here are five key reasons why you should.
1.Replace a lost income and reduce financial hardship
The loss of a partner will inevitably affect your family’s finances and your level of financial comfort. Life insurance will provide a lump sum of money or a regular income (if you have family income benefit) and this will help provide your loved ones with financial security if the worst was to happen.
Research conducted by Aviva found that married and cohabiting couples who had no life insurance were more vulnerable to financial shock if their partner passed away compared to those that had cover.
2. Pay off the mortgage and any debts
If you die before your mortgage is repaid, then the responsibility to complete payments falls to your loved ones. Life insurance enables you to be proactive about ensuring those you care for can meet financial commitments after you’ve gone.
Life insurance could help your loved ones to stay in their family home and not have to deal with more upheaval in their lives by having to move. Furthermore, the research conducted by Aviva also indicates that over 50% of people whose partners had no life insurance had to move for financial reasons.
Besides the mortgage, other debts you may have had don’t just disappear once you have died.
Creditors could try to claim the debts from your estate or if your partner co-signed for the debt with you, they would become fully liable for all the repayments. Life insurance could help to take care of any other debts that you may have had, so your loved ones have one less thing to worry about.
3. Pay funeral expenses
The average cost of a funeral in the UK, according to a report by SunLife, is £4,056.
This is a large sum of money to pay, especially in today’s economic climate. A life insurance payout would be able to help fund this expense, reducing any concerns your loved ones may have about being able to afford it.
4. Pay off or reduce the Inheritance Tax payable
If your estate is worth more than £325,000 (or £500,000 if you plan to leave your home to a child or grandchild), your loved ones could face an Inheritance Tax (IHT) bill on the value of your estate when you die.
Life insurance can help you to ensure there are funds to pay a potential IHT bill, ensuring more of your estate passes to your loved ones. Remember that you’ll need to ensure the proceeds are held in trust.
5. Give you peace of mind
Having term life insurance gives you the comfort of knowing that, if you pass away within the policy term, your loved ones will have a lump sum to help them manage financially.
They can use this lump sum to pay off the mortgage, pay bills, or cover the cost of childcare, or simply help to maintain their usual standard of living. It gives you genuine peace of mind that they won’t have to worry about money if you’re no longer around.
Get in touch
If you would like more help and advice on ways to protect your family financially for the future, please get in touch.
Email us at office@verve-financial.com or call 0330 320 5048.
Please note
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
