In Focus: When Clients' Plans Change  

Q&A: Why Christmas is a great time to discuss change

This means that many individuals might be surprised to learn that the life insurance coverage provided by their employer, if it is provided at all, is not sufficient.

Generally speaking, most employers only provide coverage equal to one or two times an employee’s salary.

In fact, a recent study by Haven Life found that the plurality of employees (25 per cent) only receive coverage equal to their annual salary from their employer. Some Twenty per cent received two times their salary, and 14 per cent received no coverage at all. 

FTA: What sort of financial considerations should individuals take into account?

WS: While there are a number of online resources that can help individuals calculate exactly how much coverage they need, considerations to account for include:

  • Your annual after-tax income 
  • Any debts that need to be paid off, including mortgage payments and student loans
  • Childcare costs (until your kids are adults)
  • College tuition 
  • Health care expenses for your family
  • Funeral costs and any other final expenses
  • Social security income (if eligible).

FTA: What sort of planning could people put in place to avoid the financial impact of such surprises?

WS: One of the best steps someone can take to avoid the financial impact of life’s surprises is to ensure they have the appropriate safeguards in place. This includes making sure they have both the right insurance policies in-force, as well as sufficient levels of coverage. 

One of those policy types is term life insurance. Fortunately, buying a term life insurance policy is easier than ever. Many policies can now be purchased online in minutes, and can often be done without requiring a medical exam.

If someone purchases an individual policy directly (meaning not through an employer), such policies are also portable, meaning they stay with you if you move jobs. Finally, term life policies are also often highly affordable.

There’s also another type of term life insurance that many people are less familiar with, but can help avoid the financial impact of life’s surprises. This is called an income replacement decreasing term product.

With a traditional term life policy, you purchase a term length and a coverage amount, potentially up to several million pounds. With a decreasing term policy, you purchase coverage to match an ongoing monthly expense, like a mortgage, or to replace your monthly income.

The key difference between a traditional term and decreasing term product?

The former requires you to estimate how much coverage you might need in the future and loved ones receive a one-time lump sum payment if a policyholder passes away.

The latter allows you to insure against a specific cost and loved ones receive a fixed monthly payout for up to 30 years in the event of a policyholder death.

FTA: How often should people review their financial plans or policies? Every year or every time something changes (i.e. another child or a divorce or a bereavement)?