Here at Copse, we always try to focus in the positive stories around being a (wonderful) parent and stay away from the sensationalist angle – however that doesn’t mean that we are afraid to tackle some of the more serious, less fun, yet still significant issues. Such as ensuring a financial legacy for your family.
Insurance is one of those personal finance things that none of us enjoy sorting out. The insurance industry thrives on fear-induced selling, and on capitalising on uncertainty and your worries.
Your relationship with insurance providers is one built on trust and expectation, along with the hope that you never actually have to use it and never have to experience customer service around claims, only renewals. It’s a subscription-based business model where they don’t have to provide you with any goods or service. Hopefully.
But for those unfortunate enough to make a call on their policies, you need to know that they will deliver and that you afforded yourself the correct and best cover regarding balancing premium with the return.
Life insurance provides for your loved ones after the point where you cannot. The type of cover and level that you will need/want depends entirely on your circumstances. For this article, I will use myself as an example, but I recommend you seek out independent financial advice. This article is for indicative purposes only and does not constitute financial advice or recommendations for your needs.
My ex-wife and I have separated and now live separately, both in rented accommodation. Separate living means that any insurance cover doesn’t need to include paying off a mortgage. Previously, we had a joint life insurance product which was a decreasing term policy. The amount the policy would payout decreased in line with the amount we owed through the mortgage, over the same period. This payout would ensure that should anything happen to us; the insurance would pay off the balance of the mortgage and therefore allow our children to either stay in the family house mortgage-free or to sell the property and have the benefit of the value of the house, less tax and fees.
Now that I have no property to leave as a financial legacy, the product I have selected for my purposes (remember you need to get independent financial advice) is a life insurance product that will pay out a monthly amount for the children up until their 18th birthday and will then payout a lump sum.
My thinking behind this is to ensure that their guardian(s) would have enough to look after them, bring them up, clothe, feed, and provide childcare for them much in the same way as now – through the amount I contribute to them currently. On their 18th birthday, the monthly stipend would stop, and a lump sum would be paid out – to set them up for their education (university fees and the like) or to assist towards their first property, or around the world trip – however, they would like to spend it.
I set no conditions on how they will use the money; I like to think that my role as a parent is to ensure that by the time they reach 18, the children are capable of making sensible decisions – rational or emotional is up to them and the person that they will become.
I would love to believe that they will both go to university, but it’s not for everyone, and I would prefer they chose to do something meaningful to them.
My monthly premium is very low, but then I’m relatively young and healthy – your premium will be based on your circumstances and risks.
So this is just a brief overview of my take on life insurance and only meant to prompt you to at least consider your options. There are many life insurance companies and products out there, and you need to decide what financial legacy you want to put in place, and what premium you can afford.
Get some advice, talk to your spouse, children, friends, or family. Just don’t leave it.
Oh and check-out putting your policy into a trust. That’s next on my list