Why do you need Life Insurance?

Blue_Parrot

Every now and then I go round the Life Insurance yes/no question, prompted today by a letter from L&G telling us that the policy taken out ~15 years ago is about to expire.

It seems to me that Life Insurance is designed to pay for Funeral costs and is aimed at people who have no funds to pay the 2?3? thousand pounds for that; and those who cannot afford to pay the premium amount into an interest-bearing savings account every month.

It's all on Planet IF. IF you or your spouse dies right now, where is the Funeral money? Have you already got that? Yes, you don't need life insurance. Will the Funeral expense take a big hit on your savings/reserves? No? You don't need life insurance.

IF you/your spouse dies right now, will you inherit his/her pension? Yes, you don't need life insurance. Will you become sole owner of your non-mortgaged property and could therefore sell it, Yes, you don't need life insurance.

Have I missed anything? Life insurance is, for people in their 60s with no dependants, and financial reserves, a waste of money, right?

Just checking. Thanks for any informed responses.

ACG

Well that could be 1 type of need for life insurance.

What about a young couple in their 30s say with a 5 year old son. £120k mortgage, dad earns £25k a year, mum works part time and earns £7k a year (not too uncommon?). Dad is going to work and is in a car crash and dies.

Mum is a single parent, with a £120k mortgage to service as well as bills and now childcare costs while shes at work. family has no money, no holidays certainly no big funeral, no luxuries such as mcdonalds, bowling or cinema.

Or, a couple who have only a small mortgage or even non at all but they have a young child. A lump sum would help with funeral costs, expenses bringing up a family, university costs etc.

Or it can be used to pay out an IHT bill (if your lucky enough to have an estate that high).

Another reason, what happens if both parents die. Your kids go to a relative or friend, it would be nice to be able to give them a lump sum to help with the bringing up of your kid(s).

Theres a few examples.

weighty1_2

Possibly a wasted of money, possibly not! If you died and your spouse inherited your pension would the amount paid out reduce? Often dependants pensions are only 50% of the primary pension holders.

Are you happy for your wife/husband to be forced into a position where they may have to move? Are they happy for this situation to arise?

Also, the cost of funeral arrangements are increasing at a far faster rate than inflation. Would your reserves be enough to cover a funeral in 20-30 years, especially if these reserves have to also be use to assist in covering living costs because pension income has halved?

Is there an IHT liability which needs protecting once both of you die? If so, would you be happy that the government cream 40% over the nil rate band? Would you rather pay for insurance now to stop the government taking your estate later?

Like I said, possibly a waste of money but possibly not.

dunstonh

IF you/your spouse dies right now, will you inherit his/her pension? Yes, you don't need life insurance.

Who is going to pay the mortgage when the income stops coming in?
Are you going to be able to live on a reduced pension (i.e. what if the death occurs with only £20k pension fund built up)?
Who is going to pay all the other bills without income?

Life insurance is, for people in their 60s with no dependants, and financial reserves, a waste of money, right?

Whilst there may be a potential need for life assurance for someone in their 60s (estate planning, funeral costs or lop sided retirement provision for example), most people at that age dont have a life assurance need. It is typically those younger and with families or where a reliance is on the income.

J8ck

I'm female, early forties, fit and healthy, the breadwinner, married with 2 kids and large mortgage. 3 Weeks ago I felt a lump in my abdomen and I expect to be formally diagnosed with a rare form of gastric cancer later this week. Wham-bam just like that it came out of left field.

One of my 1st thoughts? Thank God I have life assurance which will cover the mortgage and provide financial security for my family's future if I do die prematurely, and critical illness cover which will provide a lump sum in the shorter term easing things enough so I can concentrate on fighting the cancer and not fighting the bills.

Entirely your choice and your risk.

PasturesNew

I worked with a woman a few years ago, we were in what's probably an illegal sweat shop. Pay was cash in hand and we got £2/hour. She and her husband had bought a house and in their excitement had overlooked the life assurance paperwork - he was killed in an accident and then she found out there was no life cover ... and she was there trying to earn money to try to keep the house that they'd assumed would be paid off "if".

Personally I've never had life cover as I am single with no dependents.

mikey72

Even I took out life insurance, and covered my wife as well, when I was younger.
If I died, the mortgage was paid off, and my wife had quite a few years grace, and the kids could be looked after. If she died, I could pay the mortgage off, and give up work for 10 years or so to look after them.

Now as we're older, and the mortgage can be paid off with whatever is down the back off the sofa, the kids are grown up, we've lapsed all of it.
As to the funeral, just leave me on the bowling green, or chuck me in the local canal. I wouldn't be in a position to complain.
Even better, it could be a really good halloween trick or treat.