Mortgage Protection

Why do we need life insurance?

Life insurance is not really for you, it’s for your family and your loved ones. In the event that something terrible happens to you should want the peace of mind of knowing that the family will be able to afford to remain in the home, when you have passed and can no longer contribute to the repayments.

The insurance policy will enable those surviving you to try and maintain their lifestyle, especially in the short term, when it’s a really difficult time for the family. When someone has just lost a parent or partner, having a little bit of financial reassurance to be able to meet the bills is an important thing to consider.

Do I need critical illness cover and what exactly is it? 

Critical illness cover will usually be paid out in a lump sum if you contract a specified critical illness. Critical illnesses can range from a heart attack, cancer or stroke.

The idea is that the lump sum can support you and possibly replace your income, while you’re not able to go to work. It also provides you with peace of mind to know that you don’t have to worry about your finances while you’re recovering. 

It’s certainly a more expensive alternative to standard life insurance, but that’s because it’s claimed way more frequently than a standard life insurance policy would be.

Can you combine different life insurance policies?

You can combine the different types of life cover, as generally you’d put them all under the same provider. This is known as a multi-benefit policy, and usually provides you with a bit of a discount compared to taking the policies separately. For example, you may not have to pay an admin fee.

You may also have a Mortgage Protection Policy tied to it, so that you have money available to clear the mortgage should you need to. It’s also often advisable to consider a critical illness policy alongside this, because life insurance won’t pay out if you are unable to pay your mortgage due to a critical illness.

What is an Income Protection Policy?

An income protection policy, which is slightly different to critical illness cover, may cover you for other situations where you were unable to work, Covid is a good example of the type of situation that may arise. An income protection policy would pay you a specified amount on a monthly basis, to help you maintain your home and lifestyle. 

What is Family Income Benefit?

Family income benefit is a life insurance policy that will be paid out on a monthly basis. This is often suited to young families, because it’s a cheaper way of insuring than when you receive a lump sum payment. 

It will allow you to cover a young child, perhaps one or two years old until the age that  they’re financially dependent, which is now usually around twenty-five. If anything happened to you, the monthly amount would be left with whoever might be looking after the children. It will give you peace of mind that you are leaving money to raise your children, should you not be around personally.

How do you plan for inheritance tax? 

Everyone in the UK will be given a personal allowance of what they’re allowed to pass on to their children, or whoever else they choose, that will be free of inheritance tax. Currently that’s £325,000, with additional allowances for property.

In the event you are leaving a larger sum then than £500,000, with property, then you can potentially be liable to pay 40% inheritance tax on the amount that’s left for your children above that limit.

What people try to do is have an amount of cover that potentially can run all the way up until you die, it’s known as whole of life. At the end of that is a guaranteed amount that should be left over to pay any taxes on the funds that you’ve left your beneficiaries.

How much should I be budgeting for life insurance?

It really depends on the individual and their assets and what they are trying to protect.

If you need more cover, it’s obviously going to be slightly more expensive, but it’s always worth speaking to someone who’s qualified to give advice, because with the insurance market, there are potentially advisers that aren’t qualified to give financial advice at all. This means you could potentially over insure or under insure, but you’re not really getting a policy that is suited to you.

All our advisers are qualified to give financial advice and find a policy that specifically suits you, which we can also review and manage over your lifetime. It’s fairly common for people to be using the wrong type of policy for them, so it’s definitely worth reviewing your policy and speaking to someone that can actually give you advice in that area.

One of the main benefits of speaking to someone that can give you advice is that they can actually write your policy into trust for you. What that means is, in the event of something happening, money is actually made available a lot quicker than if it’s left outside of the trust and it falls into your estate. It means that you won’t have to go through probate to get the money out, which can take a long time. 

How can First Thought Financial help?

There are no costs for any initial contact or consultations, so even if it’s just some friendly advice you need, we’re always happy to help and hopefully provide some additional benefits.

Trusts and Inheritance tax planning are not regulated by the Financial Conduct Authority.