The current system of bereavement benefits is being overhauled from April 2017.
A key change will be the end of widowed parent’s allowance, currently paid until the youngest child leaves education, to be replaced by just one year’s payments for new claimants.
So what would happen if your family was affected?
Reviewing your life insurance provision is arguably more important than making sure you are financially prepared for retirement or that your investments are in good order.
The reason is simply that an early death robs a person of the time needed to achieve their financial goals.
It is one thing to plan for retirement in, say 15 years, or build up a capital sum over five to ten years. It is quite another to make sure your loved ones are provided for in the way you would want knowing that the date of your death could be anytime from today onwards.
Over a million people currently have funeral plans in place but the true financial loss experienced by a family when a breadwinner dies is out of all proportion to the £4,000 or so that an average funeral costs. Someone aged 35 earning £50,000 a year with a £200,000 mortgage and children aged five and seven could easily find that their partner would need £1 million simply to make up for the loss of income over the next 18 years and the repayment of half of the mortgage.
Pure life insurance is actually quite cheap – In fact, the monthly premium for an 18-year Family Income Plan for that 35-year-old to provide £50,000 a year to their family in the event of their death could be as low as £25 a month. For them to provide £1 million in cash as an alternative using an 18-year level term insurance plan would still be possible for just under £45 a month.
Clearly, it’s impossible to quantify the value of someone’s life in purely financial terms. On the other hand, the ability to provide adequately for your family so that they can still fulfil their hopes and dreams is an act of love that itself cannot be measured.
As a rule of thumb and as a minimum, it is very important to cover any outstanding mortgage or other debts. If you are self-employed, you need to make sure that you have enough cover for business debts. For those with children, your priority should be to provide sufficient cover to replace your income until your children are no longer dependent and it would be prudent to assume at least age 23 for this. Parents should not overlook the fact that the surviving partner may need to meet the cost of university education or private school costs.
If you receive life insurance cover as a benefit of your employment, please bear in mind that this will need to be replaced if you change jobs and this may be at a time when your health could have deteriorated. Although there is mention of the ‘breadwinner’ please be mindful of the true value of homemakers and insure with that in mind. If you are single with no children, you should still be protecting your income from the risk of a serious illness or accident. Such things can undermine your ability to meet your financial objectives.
In any event, it is important to take individual advice based on your own particular situation, so please get in touch to review your life and health protection needs – 01273 774855 or firstname.lastname@example.org.
Also inside our latest Pembroke Winter Newsletter:
- Does pension beat property?
- Finding income in a tricky savings climate
- LISA reappears after a summer redesign
- What is a £5,000 a year pension worth?
- Two wrongs and a right – tax evasion, avoidance and planning
- A third quarter investment lesson