While some of us have a natural grasp of numbers, others wince at the mention of words like finance, inflation and taxes. Unfortunately, learning what’s what when it comes to personal finance is a big part of being a responsible adult.
Trust us when we say, it’s important, so if you do happen to fall into the latter category and finances strike fear into your heart, don’t worry because we’re about to break it all down for you.
If you want to understand;
- How life insurance payouts work
- The financial risks involved
- How taxes can affect your policy
You can rest assured that you’ve come to the right place.
How does a Smart Guaranteed Life Insurance payout work?
You will select a benefit amount between £2,000 and £20,000 depending on your age.
You will then pay monthly premiums to maintain your policy. The premium payable depends on the benefit amount you choose, your age, and whether you have a single or a joint plan.
Your premiums are fixed and will not change throughout the duration of your policy. After your 95th birthday premiums are no longer payable (but you’re still covered).
- If you die from an accidental death, the policy will pay out three times your chosen benefit amount.
- If you die from non-accidental death in the first 24 months from the policy start date, your family will receive a return of all your premiums paid.
- Should you die from non-accidental death after the first 24 months, the policy will pay out the full benefit amount.
In a nutshell, if you die, we’ll provide a lump sum payment to your legal beneficiaries.
How does a Smart Family Life Insurance payout work?
Smart Family Life Cover includes a choice of Age-Based premium or a Level premium.
With our Age-Based policy, your monthly premium is recalculated each year. It gradually increases by 5% every year for 10 consecutive years from your policy start date. You can choose to keep this policy type for your whole life if you wish.
So, for example, your benefit amount of £100,000 will increase by 5% to £105,000 after the first policy anniversary and will reach £150,000 after 10 years. If you die, the policy will pay out the full benefit amount.
With our Level policy, on the other hand, you will choose a fixed term from 10-40 years where you will pay a fixed rate each month. Your premiums will always remain the same for the duration of the policy. Once you have been covered for your chosen term, the policy will end.
If you die during this term, the policy will pay out the full benefit. However, if you outlive the term, you won’t get anything back.
Both policy types are flexible meaning you can apply to make changes to meet changes in your personal circumstances. The benefit amount will be paid if, while covered by the policy, you die or are diagnosed with a terminal illness where death is expected within 12 months and diagnosed by a medical specialist.
Still following? Ok, great!
Let’s answer some common questions about financial risk and taxes.
Are there any financial risks I should be aware of?
No-cash in value
Should you decide to cancel your policy, there is a no-cash in value meaning you won’t get any money back. You should also be aware that you won’t get any money back should you fail to keep up with your monthly payments. Smart Life Insurance policies can be adjusted if you find yourself in over your head with payments.
Inflation is unpredictable and we can’t anticipate its effect on your policy in future years. It’s possible when a premium payable is fixed, that the benefit amount won’t keep up with inflation, meaning it may not be sufficient to cover as much as you might think.
If you choose an Age-Based policy, the premium amount will increase as the years go by. Initially, this might be appealing (especially on a tight budget), but it’s important to remember that as you age, your monthly premiums will cost more. That’s why it might make sense to take out a policy as early as possible. If you can’t keep up with your premiums, your policy will end, and you won’t get anything back.
Surpassing your benefit amount
And finally, it’s possible that depending on how long you live, that you could end up paying more in premiums than your overall benefit amount is worth.
Now, let’s take a quick look at inheritance tax.
Inheritance Tax (IHT)
Depending on the value of your estate (that’s your assets including property, money and belongings), the final benefit amount might be subject to Inheritance Tax.
If you’re thinking ‘oh no! taxes are confusing’, don’t worry it’s more straightforward than you might think. And besides, before you fret over IHT you should know that your inheritance will only be subject to tax under certain circumstances.
IHT is taxed at 40% of the value of your entire estate if the value exceeds a threshold of £325,000 (single or divorced) or over £650,000 (married or widowed). If you don’t believe your estate is worth anything close to that, you might be shocked when you work out how much your combined assets are worth. Consider rising housing prices, any savings you’ve accumulated and tangible assets like family heirlooms. Your life insurance policy also counts as part of the estate, which could drive your combined assets past the threshold.
Can I prevent my life insurance from being taxed?
If you’re concerned that your life insurance policy will push your inheritance past the threshold, you can always place it into a Trust. When you write your life insurance policy into a Trust, it could be faster and easier for your beneficiaries to access the money. And the best part is, the payout won’t be subject to IHT.
You want peace-of-mind knowing that when the time comes, your loved ones can access the benefit without any hitches or hiccups. But Trusts can be complicated, and it might be a good idea for you to seek professional legal advice before placing a life insurance policy into a Trust.
We’ve got your back
If you’re ready to start taking measures to protect your family or you would simply like to know more about our policies, you can contact our UK based call centre where a representative will help you get started. Just call us on 0800 458 6901 or request a quote online and a member of our team will be in touch.