Perhaps you can remember taking out your first with-profits endowment policy. I can. It was with Standard Life and my dad took me to his “broker” who set me up with a ten-year, £30 per month policy. And I recall it paid out handsomely.
Ten years later, I was that I had done it. But at the time, as a 21-year-old who was extremely fit, I remember the subject of life insurance reared its head. As many youngsters did, and presumably still do, I declined to take out any life cover as my death was light-years away and I would deal with that later on in life. And here I am today, some thirty years on, making these decisions. My question is: how much life cover should I take out and why should I even bother?
Let me address the latter part of my question first. When I do die, I’ll be dead. I know that sounds ridiculously simple and even a little silly but, that will be it. No more worries and no requirement to think about people, stuff, finances and who Boris Johnson may or may not be having affairs with. It will all be over. Why should I care about how much money I leave to others? Once my funeral is finished and my coffin disappears, it will be time to enlist a lawyer to deal with my estate. But, I won’t benefit from any of it. So, why should I give a jot?
Well, as many financial advisors will tell you, there may be inheritance tax [IHT] issues and taking some life insurance to pay the inheritance tax bill is prudent. However, if my IHT bill is, for example, £100,000, should I simply take out a policy that covers this to the penny or add the same amount again to leave in my estate? And this is the question I am wrestling with just now, like many of you who are required to plan for death, is there a point to leaving my loved ones a big chunk of change once I pop off this mortal coil?
Life insurance is not cheap. As soon as I tell the insurance companies on their online application forms that there is a history of heart disease and diabetes in my family, the computer says no and I automatically need a medical or more detailed questions. Fair enough, as the insurance company has to carry the risk, while making a profit at the same time. Who would be an actuary, eh? But, if I take “enough” at £100,000, then I have to pay this premium each month for the next twenty years - hopefully. This would then sufficiently cover my IHT bill, notwithstanding successive governments tinkering with thresholds and liabilities. If I then add on another £100,000 to leave to my dependants, the premium notches up significantly. So why should I do the latter?
Selfishly, it would be easy to choose the “enough” bucket. But in relative terms, life insurance is still pretty good value. And despite me not being around to benefit from the proceeds, it will provide some comfort for those I leave behind. They will no longer have their dad to moan at them and chase them up for things, so £50,000 each will ease that pain. I’d really like a second hand 7-year-old Porsche Boxster with 50,000 miles on the clock right now, but I’m happy to forget this in order to pay my life insurance, so my offspring can split the money to “prop’ them up or give them a start. Or am I?
Am I already worrying in death about them? Regardless of how I think about it, the second hand Boxster is not happening just now as I do feel that the right thing to do is to add a little extra to my life insurance premiums. I’d just look silly in a Porsche anyway. I’ll look far better in my coffin with a premium of £100,000 round my neck. Life insurance is one of those strange beasts that has been created by insurance companies to provide a necessity and a profit. But, the bitter pill that I have to swallow just now is a monthly payment for a long, long time that gives me no soft-top, nought to 60 in seven seconds driving pleasure, but makes me feel secure inside that my tax affairs and loved ones will be okay.
I think that’s a price worth paying.
Jim Duffy, MBE, Create Special.