Death is the one part of life many of us do not want to think about, yet it is also the only inevitable part of human existence. When you die, if you are leaving behind loved ones and dependants, it can be an extremely traumatic and distressing time. This upset and stress can be further exacerbated if they also have financial burdens on their shoulders. A helpful solution to these worries is to take out a life insurance policy. So, how does life insurance work after death and what protections can it provide to your family and loved ones?
A financial safety net for your family
In many regards, life insurance acts as a safety net for your loved ones in the event of your death. Whether you have a spouse, children or dependent elderly parents, leaving money to help them for when you are gone can be a vital lifeline. Of course, it won’t alleviate the grief or emotional pain, but it will help with the daily practicalities in their lives and it will also prevent them from being burdened with worries about how they are going to survive financially.
How does life insurance work after death?
There are various types of life insurance that you can take out, including private life insurance and insurance through your employer. If you have taken out a private policy, there are a few steps that your next of kin can take to claim the money.
The first step is to call, email or write to the insurer. You can make this easier by giving the beneficiary all the details they will need in order to contact the insurer. However, if there are any problems, such as the insurance company has changed its name, it is a good idea to call the Association of British Insurers so they can identify and track the claim.
Your partner or next of kin will be required to send documents to the insurance company in order to verify your death. These documents include things like your death certificate. The insurance company will look at the documents and when everything is in order, they will pay the claim.
To ensure that the beneficiary receives the money as soon as possible, you can opt to write it in trust. This avoids the money being incorporated into your estate and exempts it from inheritance tax.
When you take out life insurance through your employer, you fill in an expression of wish form. In the event of your death, your next of kin would need to inform your employer of your death and the money from the policy will be awarded to the beneficiary.
Once your family and loved ones receive the money, how can it be used to make their lives easier?
Ensure that your children can fulfil their dreams
Children’s education, such as school and university fees, can be extremely expensive. Knowing that your children will be provided for in this regard, should you die, can alleviate the weight on your mind and allow you to enjoy life as you watch them fulfil their dreams, safe in the knowledge that they will be able to continue whatever happens.
Avoid leaving your spouse saddled with a mortgage debt
If you are the main breadwinner or you make a significant contribution to paying off your mortgage every month, death can cause extreme financial problems for your partner. It could even result in the house that you have worked so hard to buy being repossessed. Ultimately, your family could end up without their home. Life insurance can pay off the outstanding mortgage on your house, giving you peace of mind that your loved ones will be safe, secure and protected in the event of the worst happening.
Pay off loans and credit cards
When you pass, your loans and credit card debts may survive and they may significantly impact the financial situation of your next of kin. After death, any debts become a liability on the estate of the deceased. If you have taken out a substantial loan or racked up expensive credit card debts, this can be harmful to your family, particularly if you secured a loan against your family home. Life insurance circumvents these problems, giving your family the financial capital to repay any outstanding debts.
Support a good cause
Life insurance allows you to leave money to altruistic causes as well as support loved ones and dependants in the event of your death. If you have a favourite charity or good cause that you wish to donate to, then life insurance can provide that financial boost for them. In your will, you can instruct that a gift is left to a charitable organisation or to any individuals that might benefit from it.
Contact us at WIS Business Protection to find out more.