None of us like to think about the possibility of dying early with a young family and of course statistically this is very unlikely to happen. Indeed statistics show we are likely to live well into our 80s. But what if tragedy should strike? How do you make sure you are prepared for the worst?
Wills and guardianship
First of all make sure that you and your partner have wills in place so it is clear what you would like to happen in the event of your untimely death. Remember to also review your wills from time to time to make sure that they still reflect your wishes and that they indicate who should act as guardian to your children if unfortunately you should both die.
The guardian can be anyone you want but if they are living outside of the UK it may be difficult for them to gain the right to reside in the UK in order to look after your children or alternatively it may be difficult to for them to arrange for your children to move to and reside permanently in their home country. At the very least there could be long delays involved, during which time your children may not receive the love and care they need at what would be a very difficult time for them anyway. Think this through carefully, discuss it with the same lawyer you use to write your will(s) and see if there is someone closer to home who might act as a guardian even if only on a temporary basis.
Also think about the age of the guardian. Grandparents may love to spend time with their grandchildren but will they be able to to take on a full time commitment especially if they are very elderly? Maybe it is better to find someone who is closer to your own age.
How would your family survive financially in the event of your death or inability to work due to illness? If you are the main family breadwinner, then how would they survive the loss of income?
The answer is to review often how much life insurance you have in place to cover your untimely death and how much insurance cover you have against ill health. The latter (health insurance) can take the form of a critical illness insurance which provides a lump sum on the diagnosis of a serious illness to a permanent health insurance, which will provide an income if you are unable to work due to long term illness.
There are no hard and fast rules about how much life or health insurance you should have but if you have a young family aim for at least 10 times your annual income. This may sound a lot but think of it logically; if the main family breadwinner who earned £100,000 p/a died with very young children (say aged under 5), would insurance of say only £200,000 be sufficient? It's unlikely to be.
Ultimately it comes down to what your liabilities are e.g. outstanding mortgage and what your day to day financial commitments are such as living costs and school fees, both now and in the future, plus how old your children are. Try to work this out and if you need any help remember that the Rosecut platform and team itself can assist you with cash-flow planning and also introduce you to specialists in this area.
Life and health insurance can pay out as either a lump sum or a regular income and can be on a single life basis i.e. just for one person or on a joint life basis (i.e. paying out on either the first or second death of you and your partner). In the case of life insurance it is normally worth placing this into trust so that any benefits that pay out are outside of UK Inheritance tax (see further below).
The chances are that if you work, then your employer may provide some life and health insurance - find out how much this is and make sure you note it all down somewhere so that your surviving spouse or partner can easily access the details if they should need to. However it is unlikely that this will be sufficient on its own if you have a young family and remember it will only provide cover whilst you are employed. If you lose your job etc. then the employer funded life cover will also stop.
If you are an entrepreneur then you should be able to establish life insurance cover through your business with UK tax relief on the premiums. Again Rosecut can help with this so feel free to speak to one of the team.
Lastly while we are on this rather unpleasant subject, you may wonder what the situation is relating to UK inheritance tax ("IHT"). If you are married or in a civil partnership and your assets (likely to be mainly the property you live in) pass to your surviving spouse or civil partner then there should be no IHT, but do please check this with your tax advisor. If you are unmarried and/or not in a civil partnership then IHT will be due at 40% in this situation, although you should be able to leave up to £325,000 without an IHT charge with a possible further £175,000 in respect of your main residence i.e. your home; so possibly up to £500,000.
Also if you were to both die (for example in a tragic accident) then IHT may be due after deduction of the nil rate bands and possibly the IHT main residence nil rate bands. If you have significant assets it may be worthwhile having life insurance to cover any exposure to UK Inheritance tax.
Rosecut can help you with any of the above, either directly or through our comprehensive professional network so please drop us an email us at [email protected] for more information and support.
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