Life Insurance

Life insurance is designed to provide financial security for the people who depend on you if you were to die. It typically pays out a lump sum, which can be used to help clear a mortgage, cover household costs or provide longer-term support for your family at a difficult time.

At Lewis Christopher we arrange life insurance for clients in Milton Keynes, Buckinghamshire and across the UK. The aim is straightforward: work out what your family would actually need, then find cover that delivers it at a sensible price.

Most policies fall into one of three shapes. Level term assurance pays a fixed amount if you die within an agreed period, and the sum assured stays the same throughout. Decreasing term assurance reduces over time, which suits a repayment mortgage because the debt falls as the years pass. Whole of life cover has no end date and pays out whenever you die, which makes it more expensive but useful where cover is needed permanently.

Term policies have no cash-in value. If you outlive the term, nothing is paid and the cover simply ends, which is why matching the term to the need matters more than picking the longest one available.

There is no standard answer, but there is a sensible way to work it out. Add up what would need clearing, usually the mortgage and any other debts. Add what it would cost to replace your income for as long as your family would need it. Add one-off costs such as childcare or education. Then subtract any cover you already have in place. Where there is death in service benefit through an employer, we would usually treat that as a bonus on top rather than deducting it, because it is tied to the job and stops if you leave.

That calculation is where most people either guess or default to whatever round number sounds reassuring. Both tend to produce cover that is either uncomfortably thin or more expensive than it needs to be. We work through it properly with you.

For many people, life cover starts with protecting the mortgage, but it can also be used to provide additional support for a partner or children and help protect future plans. The right level of cover will depend on your circumstances, including your family commitments, outstanding debts and the financial support you would want to leave behind.

Lenders do not usually require life insurance as a condition of a residential mortgage, though many people arrange it at the same time because the need becomes obvious. Cover bought alongside a mortgage is not tied to that lender, and it is worth reviewing when you remortgage rather than leaving it to run unchanged for twenty years.

Couples are often offered a joint life policy, which usually pays out on the first death and then ends. Two single policies cost a little more but pay out twice, once on each death, and each person keeps their own cover if the relationship ends.

A joint policy is frequently the cheaper option and can be perfectly sensible where the need is clearly shared, such as covering one mortgage. Two single policies tend to suit where there are children, where each partner has separate financial responsibilities, or where flexibility later matters. It is worth understanding the difference before defaulting to whichever quote appeared first.

They answer different questions. Life insurance pays out if you die. Critical illness cover pays a lump sum if you are diagnosed with one of the serious conditions specified in the policy and survive it.

The two are often bought together, sometimes as a combined policy paying out on whichever happens first. That is cheaper than two separate policies but pays only once. Which structure suits you depends on budget and on what you are most worried about, and it is worth a proper conversation rather than a checkbox.

Rather than a single lump sum, family income benefit pays a regular monthly or annual income for the remainder of the policy term. For a family whose main concern is replacing a salary, that can map onto the actual need far more closely than a large one-off payment, and it is usually cheaper than equivalent lump sum cover.

It is less well known than standard term assurance and often overlooked, which is a shame, because for younger families it is frequently the better fit.

If a life insurance policy is not written in trust, the payout normally forms part of your estate. Everyone has a tax-free inheritance tax allowance of £325,000, rising to £650,000 for a married couple or civil partner because any unused allowance passes to the survivor. On top of that, there’s the residence nil rate band, worth up to £175,000 per person, if you’re leaving your home to children or grandchildren, though this starts to taper away for estates over £2 million, and disappears entirely above £2.35 million. And anything you leave to a spouse or civil partner is exempt from inheritance tax altogether. Once all that’s taken into account, anything left over is taxed at 40%, and a life insurance payout added to your estate can push you over that line and increase the bill it was meant to help with.

Writing the policy in trust places the payout outside your estate. It goes to the trustees for your chosen beneficiaries rather than into the estate, so it is not counted for inheritance tax and does not have to wait for probate before it can be paid. Insurers still need time to process a claim, but the money is not held up by the estate administration.

Setting up a trust is usually free at the point of taking out the policy and takes a form rather than a solicitor. It is one of the most straightforward pieces of planning available, and one of the most commonly missed.

Protection rarely sits on its own. Depending on your circumstances, life cover usually joins up with one or more of these: