The value of a loved one

Tuesday 20 October 2015, 11:12 AM

Ricky Butler
Head of Best Practice , LifeSearch

  • Loved one 849

Every 22 minutes a child in the UK under the age of 16 loses a parent. 

I have two young girls under eight and it’s inconceivable that anything should happen to me let alone my wife.  Understandably, most parents don’t spend much time thinking about what would happen if they died when their kids were young. Even fewer consider the possibility that both of them might die while their children are still dependent on them.  

Making plans for the guardianship of your children is important however, unlikely the event of you both dying.  The consequences of not planning ahead are that your children’s futures are placed into other peoples hands normally by way of the courts and social services.  As if this wasn’t bad enough, your children might be placed in care while the bureaucracy is sorted out and even then they could end up the responsibility of someone other than you had wished for.  

The simplest remedy to this problem is to make a will.  Most wills will have a section in which you can detail guardianship if your children are young.  You can of course elect not to make a will and instead formally draft a letter which outlines your plans.  

While this will address who looks after your children, it doesn’t address the cost, and raising a family is an expensive business.  The cost of raising a child to 18 is currently around £185K and rising year on year.  Legal and General estimate that parents are willing to spend three times more on treats and pocket money than on insurance.  We seem happy to spend money on our children but not to protect them.  

One of the most cost effective ways to protect a family is by using Family Income Benefit insurance.  While its name sounds dull, Family Income Benefit (often referred to as FIB) is one of the most useful and best value protection products you can buy. Rather than providing a lump sum should you die, it instead provides a regular, tax-free, monthly income for your dependants - from the time of the claim to the end of the plan term

For example; if a FIB Plan is set up for 18 years to pay £24,000 a year and a claim is made after one year then £24,000 x 17 years, or £408,000 would be paid. But if a claim is made after 16 years, £24,000 x 2 years, or £48,000 would be paid. This decreasing pay-out is why Family Income Benefit often costs less than traditional life insurance, but while a family with a new-born could need all of that £408,000, the same family with a 16 year old might well find the £48,000 enough.  

The life insurance you elect to take either as a lump sum or a regular income can be placed into trust.  A trust can put the money in the right hands at the time when it’s needed most.  It can make sure that if one parent died, the other would have access to the money, but if both died the proceeds could be held for the children until they were older.  Trusts also save on inheritance tax, as without one £4 in every £10 could go to the taxman.

Protection costs little and planned properly will ensure your families future is secured.