6 benefits of life insurance cover

Life insurance is a critical part of your financial planning. It's designed to protect your loved ones in case something happens to you. Without life insurance, your family or loved ones might struggle to make ends meet if you were no longer there to provide for them.

So why leave it to chance when you can secure their financial future in just a few clicks? Here are six benefits of life insurance:

1. Gives peace of mind

One of the biggest benefits of life insurance is that it gives you and your loved ones some peace of mind. You can rest easy knowing that your loved ones will be taken care of financially if something happens to you.

This peace of mind can extend beyond the financial aspect. It can also help relieve some of the stress and anxiety that comes with worrying about the future.

With a standard life insurance policy, once you die, a cash lump sum is paid out to your loved ones. They can use this money towards future payments, helping to ensure your children are looked after. Even if you don't have children, the money could help ensure your partner or spouse is financially stable in your absence.

2. Provides financial protection for your loved ones

If something were to happen to you, your family and/or loved ones could be left struggling to pay for even the most basic expenses. But the beauty of a life insurance payout is that it can be used to help your loved ones in countless ways.

This can help ease the financial burden potential affecting your loved ones, providing them with funds to help maintain their cost of living.

It can protect families from the immediate costs associated with a death, such as:

• Living expenses
   

• Funeral costs
   

• Utility bills
   

• Debt repayments
   

• Rent or mortgage or payments
   

• Medical bills

It could also compensate for a lack of savings. After all, there's always a broken boiler or car breakdown that can quickly eat into our savings. So if your loved ones don't have savings, the death benefit from your policy could come as a huge relief in their hour of need.

Depending on the financial situation, your loved ones can use the money to buy a new car or make improvements to their home.

3. Protects your family's home

For many families, their home is their most valuable asset, however, it can also be their biggest financial burden. If the main breadwinner were to pass away unexpectedly, it could put their family at risk of losing their home.

That's where life cover can become a game-changer. It can help ensure families won't have to worry about losing their home due to an inability to make mortgage payments. Your loved ones may even be able to pay off the full balance of the mortgage, thus leaving them with no debt on the house.

There are two main types of policies used to cover a mortgage, level term life insurance and decreasing term life insurance. Decreasing is recommended for those who have a repayment mortgage, where as level term is suited for interest only mortgages.

In addition, the money from the policy could provide the financial means to cover other expenses, such as repairs and taxes, associated with owning a home.

If you and your partner share an income, it may be worth looking into a joint life insurance policy. This type of plan ensures cover for two people under one policy. It's often more affordable than two separate policies, paying out after either party dies.

4. Acts as an inheritance for your children

We all want to make sure our children are taken care of, even after we're gone. Life insurance can act as an inheritance for your children, providing them with the financial support to help pursue their dreams.

The death benefit from a policy can be used to pay for their education, weddings, or other significant life events. It may also provide them with the means to start their own business or invest in their future.

Note: Though life insurance payouts are considered tax-free, the policy may be liable for inheritance tax. Providing the value of your estate is below the government threshold (£325,000), your policy shouldn't be liable for inheritance tax. To keep your policy exempt from inheritance tax, you may want to consider writing your policy in trust.

Depending on the type of life insurance you opt for, you can get permanent cover - such as whole life insurance. Although it is one of the most expensive types of life insurance, whole life cover protects you for the rest of your life.

This means that as long as you continue to pay their premiums, your loved ones receive a death benefit no matter when you pass away. All you have to do is keep paying your monthly premium to stay covered.

Another type of policy is term life insurance. This type of cover has a set policy term, for example, 20 years. The policy only pays out providing that you die within this timeframe. If not, the policy expires and you won't receive any money for the premiums paid.

Term life policies are typically cheaper than whole life, however a pay out is not guaranteed. If you’re unsure about which of these policies are right for you, why not check out: whole and term life insurance: which is better?

6. Payouts are usually tax-free

Life insurance payouts are typically tax-free, providing a significant financial benefit to your family/loved ones. In the UK, the lump sum payment received from a life insurance policy is not subject to income tax or capital gains tax.

However, it can be taxed for inheritance tax (IHT) if the value of your estate exceeds the IHT threshold. Your estate consists of all your financial assets and possessions that are left behind after you pass away. This includes money, investments, pensions, property, and any other valuable belongings.

The threshold for IHT is currently £325,000 - so if the value of your estate is below this amount, your life insurance payout should not be subject to inheritance tax. To ensure that your policy remains exempt from inheritance tax, it may be wise to write your policy in trust.

Which type of life insurance should I buy?

Everyone has their own reason for buying life insurance, so it's best to buy a policy that reflects just that. As already mentioned, there are two main types of life cover - term and whole.

Term life insurance provides cover for a specified period of time (policy term), making it a suitable option for those looking for protection for a certain amount of time. If you die during the term, the policy pays out a cash lump sum, but if you outlive the policy, no payout will be made.

Whole life insurance, on the other hand, provides cover for your entire life. As long as you continue to pay your premiums, your family will receive a death benefit when you pass away. It can also feature an investment element that allows the policy to build cash value over time.*

The policy that's best for you will ultimately depend on your individual needs and circumstances. If you're looking for temporary cover to protect your loved ones during a specific period of time, term life insurance may be the right choice for you. On the other hand, if you want permanent cover, whole life insurance could be a better fit.

*The insurance products offered by Cavendish Online have no cash-in value at any time. If you stop paying your premiums your cover will stop, your policy will end, and you will receive no benefit. If you have not claimed before the end of your policy, the policy will end, and no benefit will be paid.

How Much Life Insurance is Enough?

One of the most important questions when it comes to life insurance is how much cover do you need? The amount of cover you require will depend on various factors, including your income, debts, and financial goals.

A general rule of thumb is to have a policy that covers at least 10 times your annual income. This can help ensure your family has enough financial support to cover any expenses and maintain their standard of living in the long term.

This isn’t necessary or even affordable for everyone though, so be sure to speak to an adviser to obtain a bespoke recommendation based on your circumstances and needs.

You’ll also want to consider any financial commitments you have that could be at risk. Consulting with a financial or insurance adviser can help you determine the appropriate amount of cover for your specific situation.

Buying life insurance at the click of a button

Getting life insurance through Cavendish Online can be done quickly and easily. Our easy to use online service helps you compare quotes from top insurance providers in just a few clicks. This allows you to find the right cover for your needs and budget with ease. This option is non-advised.

Alternatively, you can get in touch with one of our advisors to get a bespoke recommendation for your circumstances. This route is also best if you have a pre-existing medical condition or high risk hobby/occupation.