Your financial plan is there to help you focus on your goals and build wealth, so you can achieve the lifestyle you want now and later in life. Beyond that, a clear plan could allow you to build financial resilience and prepare for the unexpected.
Protection is an important part of this because it could support your family if the worst happens. For instance, when you pass away, your loved ones may receive a lump sum from a life insurance policy. They might use these funds to pay off the mortgage, manage their living expenses, and save for the future.
Ultimately, having life insurance in place could mean that your family remain financially stable after you pass away.
Yet, this is not the only advantage.
Here are three lesser-known benefits of life insurance you might not have considered before.
1. You could reduce health anxiety
The internet gives us more access than ever before to information about our health. While this can help you make more informed choices, it may also increase feelings of anxiety about your wellbeing.
One reason you might worry about your health is that you’re concerned about how your family will cope after you’re gone, especially if you pass away unexpectedly. Your loved ones could see their household income fall significantly and this could make it difficult to pay the bills and save for the future.
Life insurance offers peace of mind here as your family could use a payout to clear some or all of their mortgage, cover general living expenses, and contribute to their savings. Ultimately, this means that they may be more likely to remain financially stable now and in the future.
While you may still have concerns about your health and wellbeing, knowing that your loved ones will be financially secure after you’re gone could help to alleviate some of those worries.
2. Additional benefits may help you live a healthier lifestyle
Making some simple lifestyle changes now could improve your health and potentially mean you live for longer. However, it can be challenging to know how to adjust your diet or what kind of exercise routine you should follow because there is so much conflicting health information out there.
Fortunately, if you have life insurance, you may have access to some additional benefits that might make it easier to manage your health.
For instance, you may be entitled to:
- Private GP appointments
- Mental health support
- Nutrition advice
- Regular blood tests
- Physiotherapy sessions
- Discounts on gym memberships.
Many providers offer these services at no extra charge, but you may not realise you can access them.
By contacting your life insurance provider and taking advantage of these perks, you could improve your general wellbeing and monitor your health more closely, so you identify potential problems earlier.
3. A life insurance settlement may help your loved ones pay an Inheritance Tax bill
Most of us take out life insurance to ensure our families remain financially stable after we’re gone. Thankfully, this kind of protection could also be useful in helping your beneficiaries pay an Inheritance Tax (IHT) bill.
Normally, when you pass away, the executor of your will must apply for probate – the legal process of validating your will. Only once probate is granted can they distribute assets from your estate to your beneficiaries.
However, the probate process can only be completed after the executor pays any outstanding Inheritance Tax (IHT) on the estate. To do this, they must add up the total value of your estate and calculate whether any IHT is due.
The executor must then pay the bill before they can access wealth from your estate. In some cases, they might be able to pay the outstanding balance directly from one of your bank accounts, but this is not normally the case.
Instead, the executor will have to pay the IHT bill themselves and then recoup the costs after probate is granted.
This could put significant financial pressure on them if you have a large estate. Additionally, the IHT bill could reduce the amount of wealth you’re able to pass to your beneficiaries.
Fortunately, if you take out a life insurance policy, the funds from the settlement may cover any outstanding IHT bills, meaning your loved ones inherit more of your estate.
What’s more, if you place the policy in a trust – a legal arrangement that allows you to pass assets to another person for the benefit of a third party – it no longer forms part of your estate.
Consequently, the funds from the settlement would pass directly to your beneficiaries without the need to wait for probate to be granted. This means your loved ones won’t have to deal with the financial burden of paying an IHT bill before they can inherit from your estate.
That said, the rules surrounding trusts can be complex and there are several different arrangements you could use. It could be useful to seek professional advice to ensure your loved ones have the necessary financial protection.
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Please get in touch or email us at advice@mlifa.co.uk for more information.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning, or will writing.
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.