Do I need Life Insurance?

 

 

Life insurance is not something you would typically buy for yourself. In fact, by its very nature, it is supposedly impossible for you to benefit from life insurance personally. Since it can only pay out on your death, it is an inescapable fact that any benefits from life insurance policies will come too late for you. This is why in the vast majority of cases, life insurance policies will not be for your own personal benefit, but for the benefit of others, such as your spouse or children.

Naming your spouse or children as beneficiaries of a life insurance policy is a very common and sensible way of looking after them in the event that anything were to happen to you. In fact, you can even avoid inheritance tax in this way. If you pay life insurance premiums for a policy in the name of your family, the pay out on your death will go directly to them and will not form part of your estate, which is what gets taxed under the rules of inheritance tax.

Of course, such a provision is open to abuse and the inland revenue will only allow such a policy to be free of inheritance tax if it was taken out for looking after your family in the ordinary course of events. If the policy is a big tax scam they will not allow it. For this reason, the premiums on the policy will have had to be reasonable, and in general, the inland revenue will be looking to ensure that the premiums were paid for out of income and not savings.

As well as looking after your family, you may also wish to look after a business interest. There have been reports in the media recently that Michael Flatly insured his feet for five million pounds. This shows another type of interest that someone may have in your life. It is very common for companies to insure the lives of key employees who are vital to the company and who they have invested a lot of money in. There are also policies that you can take out on your business partners and professional practices such as lawyers and accountancy firms frequently take advantage of such policies.

There are however, ways in which you can benefit personally from your life insurance policy. There are instances for example, where you can borrow against your life insurance. For example, if a bank can be shown that you will receive a payout on your death, or more commonly, on your retirement under a life assurance policy, they will in most cases be willing to lend you an advance on the pay out. This is because they know that if anything happens to you, or when your retire, there will be plenty of money to pay back the loan.

Another example of this is a life insurance policy that is taken out to protect your mortgage. The bank will usually be willing to lend you a lot more money if they know that on your death, the mortgage will be paid off in full.

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