International Adviser talked to Prudential, Sunlife and Aviva to understand at what point people should start thinking about life cover and the products that are most relevant to them.
Something that is particularly relevant given that the number of people buying insurance remains low despite general acknowledgement that major life events could see them struggle financially.
“It continues to be the case that there is far too big a proportion of people that have either too little or no life protection insurance in place, for every key life stage,” Paul Brencher, UK health and protection director at Aviva, told IA.
“Moving through adulthood, making decisions and experiencing the events that shape our lives provides many moments to consider how life insurance, critical illness and income protection cover can protect you and your family should the unexpected occur.”
Protection is essential
Vince Smith-Hughes, director of specialist business support at Prudential, told IA: “First and foremost, essential protection should be in place where needed to cover liabilities for any dependants.
“This would include life assurance protection to repay a mortgage, to ensure a roof over the heads of loved ones. Other protection such as critical illness cover is also very worthy of consideration.”
But life insurance is there to protect loved ones as well, Mark Coutts, financial adviser at SunLife, told IA.
“When thinking about life insurance, ask yourself two questions: Would someone suffer financially if I died unexpectedly? And are there loans, taxes or other debts I want to have eliminated upon my death in order to maximise the value of my estate for my heirs?”
Insurance planning as important as retirement
Coutts added: “Too often, we see people leave their insurance planning until it’s too late. By the time they realise they need it, they’re not healthy enough to get it. We advise clients to consider their long-term insurance needs just as they would look down the road in planning for their retirement needs.
“While you may not need life insurance right now, if a major life event such as getting married, starting a family or buying a home is in your future plans, then at least consider getting your foot in the door with a small plan that can grow with you over time.
“This is a prudent approach to risk management: ensuring you have a foundation of insurance in place so that, if your health changes, you won’t wind up financially vulnerable to unexpected events.”
Consider every single life stage
“Buying your first home and starting a family are important times to consider whether you have the financial resilience to support your family, should you or your partner fall ill or, worse, sadly pass away,” Brencher said.
“That is where life or critical illness insurance may play a role, to help meet mortgage and other financial commitments, as well as supporting children.”
Similarly, different people will have different needs according to their situations, but that should not deter them from planning ahead.
Coutts said: “Your life insurance needs will evolve over time. A young couple with a new-born child and a mortgage has a large insurance need, but likely a small budget.
“For them, term insurance would be a good solution. It is structured to provide a large death benefit at an affordable price point for a fixed timeframe.
“On the other hand, empty-nesters with no debts are likely entering their peak investment years. For them, the need for long-term estate planning is coming into focus. In this case, permanent life insurance would be ideal to help cover the projected tax liability on their estate and pass as much as possible to the next generation.”
Don’t forget your pension
Smith-Hughes said that people should not lose sight of their retirement when thinking of buying a life product.
“Pension planning is also essential, virtually everyone who is employed is well advised to join their employer’s scheme as they benefit from their employer’s contribution as well as government funded tax relief for their own contribution.
“Notwithstanding this, saving as much as possible over and above the minimum contribution level as early as possible is sound advice given that the basic state pension is unlikely to provide anything other than a very basic level of subsistence.”
Make it personal and seek advice
“Buying life insurance is a very personal decision,” Coutts said.
“Some people don’t see the value. They would rather invest their money instead of paying premiums for a product from which they will never derive any direct financial benefit.
“Others – especially those who have suffered financially in their lives due to a lack of proper insurance planning – are passionate believers in the life-changing difference that a life insurance policy can have by providing dignity, choice and financial security to a family.”
This is why financial advice can help, not just with life insurance, but with overall protection throughout people’s lives, whether that covers critical illness, income or retirement.
Smith-Hughes added: “For most people a financial adviser is best placed to help with all these aspects and help ensure protection, savings and retirement planning are prioritised appropriately based upon individual circumstances.”