I’ve just started a new job and it comes with a death in service benefit of five times my salary.
I am a single mum with two children and I took out life insurance when my eldest was born.
Now I’m wondering if it’s worth having in addition to the work life cover or if I should cancel it?
Ensure there are sufficient funds to cover both of your children until they are adults
Emma Walker, of protection insurance adviser LifeSearch, replies: Congratulations on your new job and great news that they provide you with death in service life cover as an employee benefit.
Although the cover your employer provides is generous, as the pay-out is usually between two and four times a person’s annual salary, it’s not ideal to rely solely on this cover as the foundation for your family protection.
Employers can always remove or reduce the benefits they offer their employees.
Plus, if you should subsequently decide to leave and move to another job that employer may not offer death in service benefit or life cover at the same level.
It’s best to view any death in service life cover provided by an employer as a bonus to supplement life cover that you have in place.
Having your own protection cover provides guaranteed peace of mind, that the cover is always there to help, if needed, regardless of any job moves.
Emma Walker is a director at specialist protection insurance adviser at LifeSearch
What is important is to regularly review the protection cover you do have in place to make sure it is still suitable and at an adequate level, given any change in your circumstances.
For example, you mention that the original life cover was taken out after your first child was born.
If you’ve not reviewed your cover since then, this may mean that the level of cover and the term of policy may now not be at the right level or the term too short.
You need to ensure there are sufficient funds to cover both of your children until they are adults and at a level that would help both of them to have a good quality of life.
For example, research from the Child Poverty Action Group in 2017 found the average cost of raising a child as a couple to the age of 18 stood at £75,436 – not including private school tuition, university fees or higher education on top of that.
The level of cover required is all too often underestimated. It’s common to think that the funds required need only to be based on two or three years’ salary.
But for a new child the amount required needs to be enough to help them until they are over 18 or even 21.
Any savings are unlikely to help over this length of time, particularly as savings in the UK are at record lows – two in five people have less than £1,000 to fall back on in case of a rainy day.
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What’s great is that protection cover can be arranged in different ways. One of the most cost-effective is a family income policy.
So rather than receive a payment as a lump sum, it is possible to receive payments on a monthly basis, or a combination of the two.
This flexible approach is particularly popular for families as a lump sum is available to meet obligations such as a mortgage, car loan or debts and the monthly payments help with the more regular household outgoings.
Also bear in mind that many parents buy life insurance in case one of them dies, but a parent is far more likely to be off work because of a long-term illness or accident, than to die.
Providing for a replacement income may be the priority and need not be expensive.
One last point to check is whether the original life cover was inflation-linked.
Inflation rates have remained low for some time, with the consumer price inflation below three per cent since 2012.
But rising inflation could dramatically impact the actual value of the funds available in the future.
Linking the cover to inflation can mean that the premium is more expensive, but it will help to ensure that the amount when paid, is still of real value.
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