Like any insurance, you may only appreciate what good value it is when you consider a particular scenario if you didn’t have any cover in place.
There’s no doubt that great cover low cost life insurance (in its various forms) is a wise thing to have, however whether life insurance could be considered a smart investment depends on what kind of policy you choose, based on what suits your individual circumstances.
There are several types of life insurance policies on the market, but they generally fall into two categories: ‘term’ life insurance and ‘whole-of-life’ insurance.
‘Term’ insurance is a less expensive form of life insurance as you may outlive the policy, as opposed to ‘whole-of-life’ insurance which is more expensive as it effectively has an investment component, as the insurer will eventually have to pay out at the time of your death. Investment, by definition, encompasses the expectation of a benefit - which is guaranteed with ‘whole-of-life’ insurance so long as you keep up with your premiums for the life of the policy.
Term insurance as an investment
The main benefit of having term insurance is that it offers your family protection by covering flat costs, such as the loss of your income if you were to die during the term of the policy. So, you could think of term life insurance as an investment, in the sense that if you were to die, your loved ones will receive a relatively large payout when you consider the relatively little you may have actually spent in terms of a monthly premium. Whether you consider peace of mind as an investment also entirely depends on your outlook. It’s worth remembering that should you outlive a term based policy and not make a claim, there is no financial gain.
Whole-of-life insurance as an investment
A main benefit of whole-of-life insurance is that it can help your family deal with bills associated with inheritance tax when you die.
TIP: Whole-of-life insurance is also known as life assurance by many insurers.
Currently, if an estate is valued at more than £325,000, inheritance tax will be charged at 40% on the value of the estate above that threshold [1]. However, the tax will need to be paid before your family is given access to your estate. This can put your loved ones in a difficult position - as they would need to pay a tax bill which may run into (tens of) thousands of pounds, but they wouldn’t be able to use the money in your estate to do so.
A whole-of-life insurance policy could help avoid this issue though, by paying out the funds required to clear the inheritance tax bill - without your family needing to take out a loan or go into their own savings to cover it. Keep in mind though, this is reliant on the policy being written in trust.
Whole-of-life cover may also appeal if you are determined to leave some form of inheritance to your family, or if you want to help with your funeral costs. Once again, whether you consider peace of mind as an investment is entirely subjective.
Summary
If you consider looking after your family when you’re no longer around as something that’s important to you, life insurance in its various forms should always be considered as a smart investment.
Speak to Cavendish Online today who can help guide and support you in choosing the best cover for you and your family on 01392 241 850.
[1] https://www.gov.uk/inheritance-tax
