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Family Savings Declines, Increasing Importance of Life Insurance

October 27, 2013 By Peter Thomas

UK residents are raiding their piggy banks to maintain their standards of living, dropping family savings to their lowest levels in four years. The economy may seem to be improving but consumers are paying the price, supporting it with their savings rather than with newly-generated income.

Though the indication of economic growth is positive news, the running down of savings is not. Many UK adults will find themselves without enough money to provide for future generations in the event of their deaths.

Significant Decline In Peoples Savings

The Trades Union Congress (TUC), the national trade union centre, recently reported that household savings dropped from £20.1 to £11.4 billion. The same period was characterised by a 4.2 percent increase in consumer spending and government support of the housing market.

This is not a sustainable framework for economic recovery and is uncomfortably similar to the trends that caused the economy to crash several years ago.

According to Frances O’Grady, general secretary of TUC, sustainable recovery is based on investment, growth, and recovery of living standards. He called for a “pay rise” for Britain. A spokesperson for the Treasury commented that though the UK is recovering, it has far to go and the situation is still difficult for many families.

The spokesperson stated that the government is committed to delivering sustainable growth and jobs while correcting what caused the economy to go awry.

Providing for the Future

With more UK families breaking into their piggy banks and depleting savings, the future looks grim for their beneficiaries. Future generations may be unable to rely upon this money to maintain their standards of living once these savers are deceased. In extreme situations, beneficiaries may be forced to sell cars, homes, and other valuable assets to make ends meet or repay debts left by the deceased.

Life insurance is one way to prevent this unnecessary burden on younger generations. UK adults can allocate some of their income to life insurance premiums, purchasing policies that provide lump sum pay-outs upon their death. If there is no income to spare, using some savings to buy life cover is a smart investment in the future. Beneficiaries will receive money when they most need it and can use this for any purpose.

Tax Break Benefits

Pay-outs from life policies are not subject to income or capital gains tax, increasing the amount that beneficiaries receive. If a policy is written in trust, it is not considered part of an estate and is then exempt from inheritance tax. Consumers should consult with a life insurance expert to structure their life policies appropriately for limited tax implications.

When shopping for life cover, comparing the benefits, terms, and conditions of several policies is recommended. By taking this approach, consumers will find the most desirable cover at the most affordable price. A life insurance comparison website offers one-stop shopping for cover across multiple carriers.

Wherever they end up purchasing cover, consumers should ensure that the pay-out meets the financial needs of beneficiaries. An investment in life insurance is only worthwhile if it allows recipients to life comfortably without dipping into their own savings to carry on.

Filed Under: news

Does Inheritance Tax Apply To My Life Insurance Policy?

October 22, 2013 By Peter Thomas

Inheritance tax is imposed on some trusts, gifts, and estates of deceased individuals. UK residents are not automatically required to make an inheritance tax payment. This charge applies only when the value of an estate exceeds the government-imposed threshold, which tends to change each year.

The threshold for 2013-14 is £325,000 and a 40 percent tax is imposed on the estate value that exceeds this figure. If the estate qualifies for a reduced rate due to a charitable donation the tax rate is 36 percent.

Who is Responsible for Inheritance Tax Payment

When someone dies, the executor or personal representative of his or her estate is usually accountable for the inheritance tax payment. The value of an estate is calculated by summing values of the included assets and deducting any existing debts of the deceased, which may include funeral expenses.

Gifts that the deceased made while living that do not qualify for exemption must be counted when valuing the estate. The inheritance payment is made from estate funds.

In most situations, inheritance tax must be paid by no later than six months from the end of the month of death. Interest charges apply to any amount outstanding after this time. It the estate value includes property such as a home, inheritance tax may be paid in instalments on an annual basis over a period of ten years.

The inheritance tax interest rate is three percent and instalment payment interest is 0.5 percent. These rates have not changed since September 2009.

Inheritance Tax Threshold Adjustment

A surviving married or registered  may increase the threshold for inheritance tax on his or her estate when the other party dies. This rule was put into place in October 2007 and for 2013-14 the estate may be increased to £650,000.

The executor or personal representative of the deceased’s estate must transfer the unused inheritance tax threshold when the first individual dies. If a deceased individual leaves any assets to a spouse or civil partner with a permanent residence in the UK, inheritance tax is not usually owed on these assets even if their value exceeds the inheritance tax threshold.

Reducing Inheritance Tax with Life Insurance

Calculating the estimated value of your estate upon death will reveal whether inheritance tax may be owed. If this tax seems unavoidable, consider purchasing a life insurance policy to reduce the amount that may be owed. A whole of life policy that covers the estimated tax will pass more money along to beneficiaries.

Writing the policy into a trust prevents the payout from being included in the value of the estate. As an additional benefit, premiums paid for a whole of life policy reduce the value of your estate while you are alive.

Another way to reduce potential inheritance tax is to give away a portion of your estate while you are alive. If you die within seven years of doing this, the estate may be subject to inheritance tax but this tax rate declines during the seven-year period.

The potential liability can be covered by purchasing a decreasing term policy with a seven-year term. Beneficiaries can use the payout to pay the inheritance tax.

Further information on core topics raised in this article:

  • Inheritance tax
  • Civil Partnerships

Filed Under: your questions

Insuring the Life of Your Child

October 16, 2013 By Peter Thomas

We read a lot about insuring our own lives or the lives of our spouses. What about the lives of our children? These youngsters are so precious to us and unfortunately, many of them pass away each year. Should we insure their lives to help pay for their funeral and burial expenses or is this a waste of money? Unfortunately, many families have realised that it would be money well-spent.

Alarming Child Mortality Statistics

According to a recent article in The Guardian, death rates for British children are “a major crisis.” Every day, five children in Britain die unnecessarily from pneumonia, meningitis, asthma, and other conditions that are not property treated because NHS care for youngsters is inadequate and poorly organized, says the Royal College of Paediatrics and Child Health, a leader of 11,000 UK child health specialists.

Two thousand young lives are lost each year, causing the UK to have some of the worst death rates for children to age 14 within Europe

Experts say that sick children in the UK have greater risk of dying due to lack of paediatric skills possessed by some general practitioners, lack of expertise in small paediatric units, and a shortage of consultants. According to the Royal College, the lack of senior-level paediatricians is so severe that every unit cannot guarantee safety of treatment.

The college is fighting for major changes in the NHS treatment of children, calling for centralised hospital services to reduce the number of preventable deaths. Sweden is being promoted as one model of effective healthcare for children.

The 2012 mortality database of the World Health Organisation (WHO) reflected that, of 14 nations, the UK had the highest proportion by far of “yearly excess child deaths compared with Sweden.” Nearly 2,000 of the 6,198 deaths occurred in this region, more than two times the number of deaths in France and more than all other included countries of a similar size.

Hilary Cass, a consultant paediatrician at Evelina hospital for children in London, noted that children are the future and said, “we should do so much better.”

Calling for Improved Child Healthcare

Tough some of these children experience several congenital abnormalities from birth, a large portion are considered “healthcare amenable.” This means that better treatment would have prevented the children from dying. Among zero to 14-year-olds in eight European nations, the UK had the worst mortality rate due to asthma and the fourth worst of 15 countries for death from pneumonia, according to the WHO. Only three percent of asthmatic children have personal care plans.

By failing to change the organisation and delivery of healthcare services for children, the UK has achieved the worst child mortality in Europe. Until this situation is addressed, parents should consider insuring the lives of their children. Losing a child is very difficult and struggling to pay for a decent funeral and burial makes things much worse.

In the meantime, politicians and healthcare advocates are calling on all relevant organisations to work together to improve the health of UK children by delivering more and better care. Each child deserves an equal chance of living a healthy life.

Filed Under: news

How Much Life Insurance Do You Need?

October 3, 2013 By Peter Thomas

Dying is not something that most people think about very often. The inevitability of it makes death a part of life. If others rely upon you and the income you earn, it is important to think about what will happen to them when you die. Life insurance is one way to provide them with financial security and personal factors determine how much is appropriate.

Is Life Insurance Necessary for Everyone?

People without dependents who have enough assets to cover their debts and costs associated with death do not need life insurance. Individuals with dependents who have enough assets to provide a comfortable lifestyle after their own deaths also do not need life insurance. However, many people have more debts than assets and dependents who will require financial support for an extended period. This is where life insurance benefits become invaluable.

Life Insurance As Investment?

Life insurance is considered an investment by some people but it is different than other types of investments. Some types of life insurance are used for saving money or investing it for retirement, growing a pool of interest-earning capital. The insurance company invests the money for its own benefit and pays a percentage to the policyholder for use of these funds. Investing money from a different type of forced savings program into an index fund is likely to provide more attractive returns.

Age and Insurance

Insurance companies publicise the fact that this cover is more difficult to qualify for as an applicant ages so they recommend securing a policy at a young age. These providers earn money by betting on the lifespan of an applicant. Young policyholders enjoy relatively inexpensive premiums and if they die suddenly, the insurance company has made a bad gamble.

Most young policyholders live for a long time and pay more expensive premiums as they age.

Life insurance may be less expensive when an applicant is young but qualifying for it is no easier. An insurance company is not likely to refuse cover to an applicant who will pay the premium associated with his or her category of risk. The lesson to be learned is to purchase life insurance if and when it is needed. Do not buy it at a young age out of fear that you will not qualify at later date.

Evaluating Life Insurance Needs

When selecting a life insurance policy, determine how much money dependents will need if you die. Calculate the amount of money needed to repay all debts in full. This includes paying off loans, credit card bills, and the mortgage payment. If you are the only household member providing income to dependents, calculate how much will be needed to replace income throughout the period of dependency and add one year of income to protect against inflation.

If money will be needed for university education or dependent relocation, estimate these costs. Sum all of these amounts to determine the desired cover limit.

Anyone whose death would result in a financial loss to you should be viewed as an insurable party. For example, the death of a business partner or a spouse who earns income would create a financial loss but the death of a child would not because it costs money to raise children.

To determine how much to insure this individual for, calculate the amount of income required for the desired period of financial dependency and add one year of income to account for inflation.

Filed Under: your questions

Why Would Someone Buy Life Insurance?

October 3, 2013 By Peter Thomas

Life insurance may seem like an unnecessary benefit that costs more than it is worth. A careful review of this cover reveals many reasons why it is worthwhile. If you are considering whether to spend money on a life insurance policy, review this information to identify reasons that your money would be well-spent on this cover.

Recognizing the benefits of life insurance requires taking a long-term, big-picture approach to life.

Top Reasons to Buy Life Cover

The most important reason to purchase life insurance is to provide a secure financial future for loved ones. Benefits from a life insurance policy can be used to cover final expenses such as medical bills or cost of a funeral or cremation. A life policy can be used to arrange a reduction in mortgage repayments or the payoff of a mortgage balance. Life insurance benefits can even be used to cover educational expenses for children or grandchildren.

This benefit is not always expensive. Premiums are based on the type of cover, policy limit and term, and age and health status of the insured. As a rule, the younger the insured, the less expensive the policy and the easier it is to obtain approval. Cover is available from several companies in the UK and many providers offer multiple options, making it easy to find a policy that is affordable and features a sufficient level of financial benefits.

Compare Policy Features Before Committing

Life policies differ so it is important to read the terms and conditions to determine what is covered and what is excluded. The document featuring this information usually carries the name “Key Features” or “Key Facts.” Compare the features of different policies from several carriers to find the cover that is best for your situation.

Since some policies stop providing cover once the insured reaches a particular age, confirm the age limit for the cover being reviewed. Learn about the policy exclusions, which may include existing medical conditions, participation in dangerous sports, or death from alcohol or drug abuse.

Identify whether a term life policy features a lump sum payment for diagnosis of a terminal illness during the cover period. Find out whether the plan includes extra benefits such as cover for a critical illness. These benefits are sometimes included at no cost but many times require extra premium payments. While investigating premiums, ask whether the provider imposes a penalty if a payment is skipped during the policy term.

Financial Aspects of Life Cover

Though life cover provides a benefit to survivors, it is also important to consider the financial impact during the present period. Ask whether the policy has a cash-in value and find out how policy cancellation is handled. Consider life cover tax implications for beneficiaries and structure the policy accordingly.

Based on the value of your estate, beneficiaries may have to pay inheritance tax on the life  benefit paid unless the plan is placed in trust. Tax policies can change annually and this area of the law tends to be complicated so getting advice from a financial professional is recommended.

If the benefits and features of life insurance cover seem attractive, find an affordable plan that offers an adequate benefit. Designate beneficiaries carefully because these are the individuals who will gain financially upon your death. Ask all policy-related questions before signing the plan documents and ensure that premiums are always paid in order to maintain cover over the years.

Filed Under: your questions

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