Maybe it’s been something to do with the recently publicised ‘holes’ in many state and private company pension schemes that means the cast iron guarantee of a secure and comfortable pension for many people is now a thing of the past. It might be to do with the post 9/11 mood or the financial crisis that has enveloped the world’s economies over the last couple of years. Whatever the true reason, increasing numbers of people are taking a long, hard look at the potential benefits of life insurance. They now seem to be realising the ongoing peace of mind as well as the longer-term financial rewards that good life insurance offers.
Many are also coming to realise that life insurance is a far more flexible, practical and cost effective way for them to protect their family from financial difficulties than they may have realised. Whilst most people are basically aware of the sorts of financial contribution that life insurance makes as a result of the insured person dying, they are less clear on the living benefits that life insurance can offer. Life insurance isn’t only a product that comes to the rescue in the event death. It can also come in extremely useful in a variety of other ways during retirement.
The best known benefit of life insurance and what it’s most famous for is coming to the aid of the bereaved. Coping with the death of a main breadwinner can be a terrible ordeal. Not only are those remaining left to cope with the emotional aspects of their loss, but there can be extremely serious financial consequences too. In the first case there are the ‘costs of dying’ that must be met such as funeral expenses, estate administration and any outstanding debts that need settling, in addition to estate tax commitments.
As well as these immediate costs, there are other expenses to cover too. Day to day living costs as well as the larger monthly outgoings including commitments such as council tax and rent or mortgages don’t simply disappear because someone has died. Each outgoing needs to be dealt with and that takes hard cash. Without any provision put aside to meet these obligations, financial problems can start to mount rapidly. That’s the primary role of life insurance. To provide the money a family needs to function when it needs it most. Of course, how much money is paid to the policyholder’s dependents is down to the death benefit of the policy.
The other important contributions of life insurance policies, benefits often overlooked or misunderstood are those that accrue while the policy holder is still alive – living benefits. These are permanent lifetime policies that in addition to offering death or terminal illness benefit, also usually build cash values. It’s these cash values that can add value to the policy in a variety of ways while the policy holder is still alive and healthy.
It is possible with some permanent life policies to make withdrawals from the cash value money, or establish loans with the insurance company and to use this money in any way the policyholder wishes. Withdrawals or loans might be used as additional income to sustain a quality of life throughout retirement by topping up a pension, to invest in a new house, a car or holiday of a life time or to put the grandchildren through school or university. How that money is spent is up to the policy holder, but the amount will be deducted from the final death benefit lump sum. Always take a good look at the market before committing. Use a comparison web site to identify the most appropriate and best value options. Then before you commit to a policy make sure you go over the fine print with a professional. You need to be clear about exactly what the policy is and the benefits it will offer you and your family over the long term.