Life insurance is a type of insurance that pays out when you die. Sometimes it only pays out if you die during a certain period of time.
Life insurance is helpful for two main reasons:
- It can pay off debts left behind, such as a mortgage.
- It can provide money for your family after you die.
Mortgage providers often try to sell people life insurance when they take out mortgages. You don’t have to buy life insurance from your mortgage provider. It is important to search for the best insurance for your situation. If you are thinking of buying life insurance, it is always a good idea to contact your mortgage provider to check if you have life insurance included in your mortgage repayments.
Life insurance through an employer
Many employers offer life insurance to employees on a group basis. This means all their employees can get life cover through an insurer that the employer has chosen. Cover is often provided up to a set amount of money for employees who have joined the scheme, and this cover is not affected by any health conditions they may already have. Many employers also offer a type of insurance called ‘death-in-service’ benefit.
Contact your HR department at work to find out whether your employer offers a group life insurance scheme that you can join.
Putting a policy in trust
When you die, there may be inheritance tax to pay on your estate. Your estate is everything you own at the time of death, minus anything you owe. This includes possessions, money and debts.
Normally, it would also include any payout from a life insurance policy, but you can arrange to have most life insurance policies written in trust. This means that instead of the payout being part of your estate, it goes directly to whoever you nominate, such as your partner or children.
Doing this may reduce the amount of tax due on the payout. It will also make sure whoever you nominate will get the payout. Not putting a policy in trust means they have to wait until your estate is sorted out after your death, and this could take months or even years.
Ask your insurer about putting a life policy in trust. There is usually no extra charge for doing this.