Most people only begin to think about life insurance once they’re married and starting a family.
However, providing for your family is far from the only incentive to take out life insurance cover.
There are many reasons to consider life insurance even if you’re single.
Should the worst happen, your life insurance could help your loved ones to settle any outstanding debts you may have, such as your mortgage, credit cards and other bills.
Cover your mortgage
For most people, your mortgage will be your largest debt. Most life cover policies will be written to pay out a lump sum, equivalent to your mortgage amount in the event of your death. If you have dependants (such as children or elderly relatives) living with you, you can opt to extend the cover to provide an income for them after you’re gone.
If you’re a single person living alone, you may not need to extend your cover in this way, but knowing that your mortgage will be covered if you pass away can be a weight off your mind.
If you die before your mortgage is paid off, the bank or building society can seek reimbursement from your estate. This can mean that your property is sold to pay off the outstanding amount. If the property is in negative equity, the bank or building society may demand that the difference be made up from the estate.
In some cases, the probate process is so drawn out that the lender is able to add interest to the amount owed, which only increases the toll on your estate.
Having a good life insurance policy in place to cover your mortgage will avoid this eventuality.
Count towards other outstanding debts
If you don’t have a mortgage, applying for life cover is likely to be less of a priority.
However, you should take into account any other substantial debts or bills you may have. Any outstanding debts such as unsecured personal loans or credit cards that are still owing at the time of your death will be taken out of your estate in the same way as a mortgage would be.
The exception to this rule is student loans which would be written off in the event of your death.
It’s not only those married with children who are keen to leave an inheritance for families and loved ones. Although historically, property has formed the largest component of an individual’s estate, it’s becoming increasingly common for pensioners to resort to tapping into the equity tied up in their property to supplement their pension and living expenses.
With a life insurance policy, you will be able to leave an inheritance to those you leave behind regardless of whether you have used up the equity in your home.
However, if you are keen to take out life insurance for this reason, you must ensure it is written in trust. This will exclude your life insurance payout from inheritance tax calculations and will ensure that your family benefit from the money you’ve saved.
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