Helping you to support your loved ones
Life insurance ensures that you can enjoy your life to the fullest with peace of mind that your loved ones are protected should the worst happen. A Life Insurance policy is a plan under which regular payments are made to the insurance company during your lifetime or a set term, and in return the insurance company pays a specific sum to you or your beneficiaries after your death or death within chosen term.
Many people, at all stages of life can benefit from the peace of mind a Life insurance policy can bring. Your adviser will help you work out how much cover you need with your policy. In the event of your death, it may not just be a mortgage you want to have paid, you may want to leave your loved ones enough money to cover income you would have earned or pay for University fees etc.
Life insurance policies have a few extra features which can be beneficial for you. It’s important you take advice when arranging a policy of this type so you can be assured you will have the level and type of cover which best suits your needs.
What type of Cover do I need ?
A Relevant Life Plan is a life insurance plan available to employers to provide an individual death in service benefit for their employees. It’s designed to pay a lump sum to the employee’s family if the employee dies when employed, while the plan is in place.
Life cover can be claimed as a business expense rather than classed as a ‘benefit-in-kind’, so there may be no income tax to pay. Additionally, the policy can be written ‘in trust’ and so could protect you against inheritance tax payments. A claim can be made if the person named in the policy passes away or has a terminal illness.
If you run your business with a partner or have shareholders, what would happen if they weren’t around? When someone passes away, their assets usually go to their dependants – that would include any shares in your business. And what the dependants want may not be what your business needs. For example, they may prefer to receive a lump sum, but you may not have the cash flow to honour this. That could mean you have to sell on shares, which could reduce your control of the business.
Shareholder protection insurance helps ensure a smooth transition of a shareholding should a shareholder die (or become critically ill, if you’ve added critical illness cover to the policy). It provides ready cash for the remaining shareholder(s) to buy an absent shareholder’s shares, and also means there’ll be a willing buyer for those shares, if the new owner (or the incapacitated shareholder) wishes to sell.
There are a large a number of different factors that must be taken into account before you can get suitably protected. These range from the basics – e.g. how are you planning to purchase your cover (which affects the tax position), to the shareholder and cross option agreements. These are the agreements that underpin what will happen to the shares in the event that a payout is triggered.
Mortgage life insurance can be used to help your dependants pay off your mortgage if you die. This type of life insurance is often sold as a decreasing-term policy so, as you gradually pay off your mortgage, your pay-out reduces over time. A mortgage life insurance claim typically pays out as a lump sum. This type of life cover is usually paired with a repayment mortgage, where monthly payments are used to repay the amount borrowed as well as any interest still owing. You should also consider taking cover for any other debts you have such as car loans or credit card balances. It is important to review your plans regularly; particularly when you move home, to ensure the cover is still appropriate for your needs.
Family income benefit is a special type of life insurance policy. Generally, with life insurance, your loved ones will receive a lump sum payout from your policy when you die. It’s then up to them to handle that money as they wish. With family income benefit, your loved ones will instead be paid a regular income for a set period.
How much Life insurance cover do I need
How much protection that will be required, will be based on the percentage of the value of the company that is being considered for insurance purposes. Valuing a company is difficult, and the services of an accountant will be required. There are three accepted ways to value private or unquoted company:
- Dividend Yield – Look at past & future dividend projections as well as earnings, taking a look at dividend yields of other comparable quoted companies
- Multiple of profits – Look at the companies past and present performance considering realistic future projection, normalising for any abnormalities. This is then multiplied by the P/E (price/earnings) ratio for similar quoted business.
- Net Assets – Valuation is derived from the companies balance sheet.
The amount you’ll need will depend on your own circumstances. When you decide how much cover to take out on your policy, consider the following:
- Your mortgage term; The length of your mortgage will have a major influence on how much cover you will need.
- Income replacement; Other expenditures such as daily living costs also have a bearing, especially if your own contribution makes up a major part of the income
- Childcare & education – If you have children consider the amount required to support thier upkeep and education
- Other debts – Other outstanding debts which your family would struglle to repay without access to your income such as car loans, etc.
Contact us at Collabot Finance to review your Life Insurance needs, and obtain a free no-obligation quote.