Well, Christmas has been and gone and I hope that yours was as full of excitement and fun as ours was. Having eaten too many Roses, drunk a couple too many G&T’s and stepped on too many pieces of Lego to count, it is back to work with a bump. Albeit quite nice to return to normality.
As I mentioned in my first post before Christmas, my aim is to write about some of the various financial bits and bobs that parents should be aware of. I hope to focus on a specific area each month and give a little insight into what these products do, why you may need them and generally arm you with a little bit more knowledge to deal with the ever-increasing life admin.
This first post is about…… (wait for it)……. life insurance.
It is the sort of rock n roll area of financial advice that we love at Hudson Rose and I want you to try and ignore the internal groan you made when you read that last sentence.
In three short bursts I am going to give you some info on what it is, why you might need it, and (importantly) what it might cost. You can then impress all your friends with your newfound knowledge (or clear a room when you want folks to go home at the end of a dinner party, it’s your call).
What is it?
Simply- an insurance policy that pays out if you die within a given term (there are things called whole of life policies which are guaranteed to pay out but we will park those for now in order to keep it straightforward!)
Why do parents need it?
Primarily, parents will require life assurance for two reasons. Firstly, to protect a debt such as a mortgage. The death of a parent has a catastrophic effect on the family unit and the last thing you need is to be worrying about whether your home is going to be repossessed. A life assurance policy that pays a lump sum upon death removes this worry. This is probably the best-known use of life assurance and the one people encounter most often.
The second reason parents require life assurance is to make sure their partner and/or dependants have financial stability after their death. When someone dies, their income goes with them and as a result the families standard of living drops at best, or they go into a financial tailspin at worst.
But what can we do about that I hear you cry?!?! (humour me here)
Well, this is where I want to tell you about a less well-known type of life insurance called Family Income Benefit.
This (in my opinion) is one of the best policies for families. It works by providing a monthly income, upon the death of the insured person, for a specific term.
In practise (and this is how I have it set up for my family) it can be used to make sure that the family has enough income to get the children through to adulthood should one or both parents die prematurely.
For example, upon your death you might want £1,000 to be paid each month until your child reaches 21 (it could be any age, I have just picked 21 as it is the historic ‘get the key to the drinks cabinet’ point).
If you just had a new baby you would therefore take a Family Income Benefit policy for £1,000 per month to run for 21 years. Equally if your child was 5, you would take the policy for 16 years.
It is as easy as that.
What does it cost?
Let’s use the example above and apply that scenario to a 30 yr old non-smoker who is not in a dangerous occupation (things like occupation and smoker status can affect the premium but for the majority of people this won’t apply)
£1000 per month Family Income Benefit for a 21 year term:
£7.52 per month
Not a lot really, is it? In the internationally accepted comparison of cost in cups of coffee it’s the equivalent of 2.6 coffees per month.*
And for the same individual to protect a £200,000 repayment mortgage for 25 years?
£10.74 per month
Now it is not all that straight forward and certainly shouldn’t be viewed in the same way as buying car insurance. There are considerations such as placing policies in trust, making sure the benefit is protected against inflation, commutable lump sums etc.
At Hudson Rose, we can advise you on the most suitable policy for your needs, the amount of cover you require as well as arrange for the protection to be put in place. As we are fully qualified and regulated you get peace of mind that it has been done properly. Which is nice.
It may be that you already have some cover but it has not been reviewed recently. That’s fine, feel free to give us a call and we can have a chat about it all. We don’t charge for insurance advice and, as with all that we do, there is never any obligation to proceed with anything we recommend.
It is not part of human nature to walk around every day worrying about our mortality – we wouldn’t get much done if it was!
But, whilst it is hard to do, I would ask that you pause for a second to consider the ‘what if’.
If, after you have done so, you are happy with your position then there is no more to do. On the other hand, should the outcome be ‘I don’t know’, it might be something worth looking a little deeper into.
Thanks for reading.
*international coffee comparison scale may have been made up for this blog. But, you know what I mean.
This blog is part of paid partnership CheltenhamMaman is proud to hold with Hudson Rose.
Graham is a father of two and a regulated provider of financial advice who believes you don’t have to wear a suit to know a thing or two about looking after your money and protecting those you love. You can find out more about Graham at Hudson Rose and follow him on Facebook and Instagram.
Graham is writing a series of blogs for CheltenhamMaman covering Money Matters and would love to know which myths you’d like busted! Leave a comment or drop him a message to let us know what topics you would find useful.