Do I Need Life Insurance If Money Is Tight?

For many stressed out mums and dads up and down the UK. The recent cost of living crisis and high inflation has unfortunately meant money is tight.

During these tough economic times it makes sense to limit the monthly outgoings which are not deemed as essential.

One of the costs you may consider cancelling is life insurance. But is this a good idea if we have children who rely on us?

Below, we seek to explain what life insurance is and the key benefits. As well as some top tips of how you could save on your premiums.

Firstly, what is life insurance?

Life insurance is simply a financial safety net for a worst-case scenario. You pay a premium each month to receive cover protection. If anything were to happen to you a predetermined cash pay out would be issued to your loved ones.

The proceeds of a pay out are commonly used to clear the mortgage. Enabling your dependants to remain in the family home without having to worry about money and/or to meet future living costs . Although the funds can be used as your family wish; provide an inheritance, cover funeral costs, children’s education etc.

It can be very uncomfortable to consider what may happen to our nearest and dearest. If we were no longer around to provide. As parents it is vital to put financial provisions in place to avoid future hardship.

How much is life cover?

The cost of life insurance depends on several key factors. The most important being your age at the point of application, smoking status, medical history and the cover amount (known as the sum assured).

The younger you are, the cheaper cover will be, and this is simply because a claim is statistically less likely.

Unfortunately, most people only consider taking out life insurance after a major life event. Such as purchasing a property or starting a family. However, if you were to be proactive and secure life insurance in early adulthood. Then you could lock in a very low monthly premium for many years to come. Saving thousands over the life of the policy.

A healthy 30-year-old non-smoker with no pre-existing medical condition. Will be able to secure £200,000 cover for a very affordable 20p-a-day.

However, everyone’s requirements are different and so it is important to take the time to consider how much cover you require and how long you need cover for (known as the policy term). The longer the policy term the higher your premiums will be, as again a claim is more likely.

Mums, you can compare life insurance quotes free of charge from a wide range of providers through award-winning broker; Reassured.

What are the policy options?

Term life insurance cover is usually the most affordable and popular option for parents. Term policies provide cover for a set period (the term) and comes in two forms: level term and decreasing term cover.

Level term cover provides a fixed (or level) pay out regardless of when you pass away during the term. It is therefore a good option for those who require a fixed pay out sum, for example those with an interest-only mortgage.

Decreasing term life insurance provides a pay out sum which reduces over the lifetime of the policy. It is commonly used to cover a repayment mortgage and the sum assured can be set to mirror your remaining mortgage balance, protecting the family home.

Because the risk to the insurer reduces over time decreasing term policies are cheaper than level term policies.

It is important to know that after the term ends, the policy elapses and you are no longer covered. Therefore, it is important to calculate how long you require cover for, this is usually until the children are financially independent and/or the mortgage is cleared.

Do stay-at-home parents need life insurance?

It is a common misconception that only the family breadwinner requires life insurance protection.

Although a stay-at-home parent does not earn a tangible salary. Consider all the unpaid roles they fulfil and how you may need to replace them if no longer around.

Take childcare as just one example. The average cost of full-time childcare in the UK is a staggering £285.31 a week and that is for a single child. Alternatively, perhaps your partner would need to cut back on their work hours to look after the children if you were no longer around? Either way this is a huge cost consideration.

The proceeds from a life insurance claim could be used to help cover all these unpaid roles (chef, taxi service, personal shopper, child minder, tutor, support worker, nurse to name a few!)

Top money saving tips:

1. Take out cover whilst you are young to lock in the lowest possible premium
2. Calculate your required cover amount so that you are not paying for more cover than you need
3. Calculate your required term length so that you are not paying premiums for longer than is necessary
4. If you or your partner receives a death in service benefit through an employer, factor this into your calculations to lower your required personal sum assured
5. Consider a joint life insurance policy which cover two lives under a single policy – this is approximately 25% cheaper compared to paying two separate premiums
6. Consider writing your life insurance into trust (free of charge) to avoid/minimise 40% inheritance tax on a future pay out
7. Consider decreasing term polices which are the cheapest policy option
8. Quit smoking, lose weight, and/or lower your alcohol consumption to lower your premiums

The above should not be considered financial advice, however I hope it has provided some useful money saving tips, as well as detailing the importance of having reassuring life insurance cover in place.

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