Life insurance myths busted
Is life insurance one of those things you keep finding reasons not to look into? It’s an easy one to put off; it’s not a legal requirement, as is car insurance, and we can get a mortgage without it. But what if those reasons you keep coming up with aren’t actually based on fact? If your new year’s resolution is to get the right cover in place, read on - because we’re putting straight some of those life insurance myths to help you make up your mind!
- I’m not the breadwinner so I don’t need life cover
Many people assume that as an at-home parent or the partner earning less in your relationship, your life isn’t equally worth insuring. This can be a big mistake! Think about how your partner would cope in the event of your death. Their income may continue to pay the bills, but would it enable them to afford extra childcare or help around the home? Would they be able to take some much-needed breathing space to adjust to a new routine? Joint life insurance can be a really good solution; it’s often cheaper than two single policies and recognises the role you both play in your family life.
- I’m too young to need life insurance
When you’re in your 20s and 30s, life cover can be the last thing on your mind - it’s something you’ll think about nearer your retirement, right? But the reality is that, if you have dependents, you’re never too young to think about it, as they will need protecting should the worst happen. Life insurance premiums also tends to be cheaper the lower your age when you take out a policy, and can start from as little as just £5 per month. Our article on how to talk to your family about death and the practicalities involved might help put your mind at ease.
- Life insurance payouts are heavily taxed
You might have been told that a large part of any sum paid out will go to the taxman, but this doesn’t have to be the case at all. Firstly, life insurance proceeds are not subject to income or capital gains tax, which is good news. Depending on the value of your estate - your net worth at the time of your death - a payout might be liable for inheritance tax (IHT) over a certain threshold*. But you can prevent this by having the policy written in trust for your beneficiaries. Talk to one of our team or an independent financial advisor to find out how this works and how writing your policy in trust would benefit your loved ones.
- I’ve got mortgage insurance and critical illness cover in place already
There are lots of different protection insurance products on the market and it can be easy to think you’re already covered with the policies you may have in place, such as critical illness cover and mortgage payment protection insurance (MPPI). These types of policies are invaluable in case you’re unable to work through no fault of your own, as they will help cover your bills and living costs until you can work again. But critical illness insurance won’t leave a lump sum to your family if you die and, while mortgage protection can take care of the balance of your mortgage on your death, it also won’t result in a lump sum unless you opt for a ‘level term’ policy, as many policies offer decreasing cover in line with your decreasing mortgage.
- Life insurance is too expensive
This is a common misconception, but the truth is that policies can be tailored to fit your own individual circumstances, so you won’t end up paying for cover you don’t need. If you’re in your 50s or above, for example, you might have already paid off your mortgage and need less cover. You can also keep the cost of premiums down by taking healthy steps such as not smoking.
With life insurance starting from as little as the price of a couple of takeaway coffees each month, you might start to wonder if you can afford to keep believing the myths!
* The current (January 2018) IHT threshold stands at £325,000. In April 2017, new laws came into effect enabling people to leave a greater proportion of their estate to loved ones free of IHT - read more in the Government’s inheritance tax guidelines.