Supermarket Life Insurance -- a cautionary tale

Get cheap life insurance at the checkout rather than getting advice from an IFA- why not? Cut out the middleman, reduce commission, they are basic products aren’t they?

Well no, they are not. They are simple in execution, but when you really need them, then you understand the advantages of setting them up correctly.

If you take out a life policy on yourself, an own life policy- the way most people do- then the policy goes into your estate on death. What that means is that it gets dealt with as your estate, if you have a will your loved ones may have to wait for probate to be granted. If you don’t have a will then the problems can really start. Don’t forget your will can be challenged to, so if your family circumstances have step children or other interesting complexities, then think carefully.

Then the other big issue- if you take out a policy to protect your children while they are still dependent and you and your partner die, the kids can’t get the money directly and you haven’t specified how and where the money goes. Will you leave it to a court?

A bit of simple planning makes such good sense. If you are insuring a partner, then get them to take out the policy on you and vice versa. This way, if you die during the policy life they get the payout straight away.

Anything more complex, consider a trust. Insurance companies will give you a trust to go round your policy free, although you might want to take legal advice and tailor it for your own needs. Your IFA will guide you as to the right trust.

If you set up a trust, you will appoint trustees and they will get the policy proceeds, your trust will have laid out what you want to happen. As a for example, in the circumatances we gave earlier- your children could be left an income until they are 21 or 25 (or any other age) with grants of capital for buying a house or education up until then and then the full payout of the balance.

Choose an independent trustee with care- you could choose a professional, like a lawyer or a family friend who knows how you think, but generally choose someone of your own age or younger so that they are likely to be there if needed.

You can see the problems with commoditising this product- there is so much under the surface. And make a will!