When Grandparents Should Review Their Life Insurance Policy
For grandparents, there are often a lot of people to spread what should be the wealth around
In the end, by the time you’ve calculated the amounts that are to go to your son, daughter, grandkids, husband/wife and to pay towards funeral expenses, not to forget the potential inheritance tax bill, it makes complete sense that the policy is reviewed periodically.
In particular, when there are changes to your family’s circumstances and especially for those who will be directly affected by higher living expenses who are named as your beneficiary.
When you have grandkids, there are a lot of expenses going to crop up on occasion. The circumstances below are definitely examples of when you’d want to have a discussion with your insurance provider to make amendments to your policy when it’s related to your grandkids.
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When grandchildren will need a lot more money
1) When special health needs are required
This is unbearable to think about, and it’s not going to be on your mind until it’s happened, a serious diagnosis that’s going to require long-term support, which in turn requires additional financial support.
2) Learning support
Health needs don’t necessarily mean physical health. It can be the slightest of learning difficulties a child is diagnosed with, requiring their parents to fund either private tuition, or hire a tutor for additional educational support.
The costs of private tuition vary greatly. It can cost £3,000 rising to a staggering £15,675 per term in affluent areas.
The alternative to private education is to hire an independent tutor. These costs are again variably, but generally around £29 – £41 per hour.
3) The cost of childcare
For those who are retired, or even semi-retired, you’ll likely find your time is taken up caring for your grandchildren while Mum and Dad work.
Many parents wouldn’t entertain the idea of paying their parents to watch their kids while they go out and work. So the childcare they currently receive comes as a courtesy from you without any money exchanging hands.
When things change and you aren’t around to provide the additional support, someone will need to do it. Will there be anyone there to take over your role as caregiver, or will your kids need to hire a childminder for the grandkids?
That’s a cost that does hit family finances and ought to be factored into the total amount of cover you have with your life insurance cover.
4) College and University Fees
Education is only free up to a certain point. After that, when kids go to college, it’s often a bursary they receive. That’s based on the earnings of their parents. If that’s higher than the faculty’s threshold, then it is Mum and Dad who will be expected to partially fund their education.
If household finances are at a decent level but not considered a high-income household, a top-up bursary may be available, but if the household income is in the high bracket, it may be the bank of Mum and Dad that’s needed to pay for advanced education.
Should they be unable to afford to fund college and/or university, the alternative is student loans, and that’s when your grandkids start racking up debts before they’ve qualified to get a job. Your life insurance cover can be used to prevent your grandchildren from inheriting high amounts of student debt, enabling them to get a debt-free start to life.
The only way they won’t pay for university fees is if they’re super smart and able to secure a scholarship. Other than that, chances are, if their parents are working, they’ll need to pay something towards the cost of the education so they may need some top-up money to see them through their entire education without having to stress about money woes or feel forced into taking on a part-time job.
5) When the family grows
That day when your son/daughter tells you to sit down as they’ve something important to tell you, and then proceed to inform you of a soon-to-be new addition to the family, is the time to have your life insurance coverage reviewed.
All the thoughts that went into financial protection for your first grandchild should be repeated for the next. Naturally, the expenses will double and then triple if a third comes along. Each time, revisions should be made with your life insurance provider to make sure you have enough cover to provide financial support to each family member who relies on your income or time.
In the case of your family outgrowing the level of cover you can afford, it may be best to make adjustments to the amounts shared with the beneficiaries rather than increase your cover level.
You can change your life insurance policy anytime. It’s easier to increase your level of cover than it is to decrease it. Whether you choose to remain with your existing provider, or change to a new insurer is up to you, but should you choose to switch your provider, it would be wise to have an independent insurance advisor go over the terms and all clauses to ensure you are switching like for like but with the additional level of protection. Nothing that was covered in your current policy should be taken away when you switch your policy, with your existing provider or with a new insurer.
You can have more than one policy, so it may work out cheaper to leave your existing cover in place with no changes and take out an additional policy for whatever level of cover you require. That could see you get a cheaper deal for the same level of cover.
Revise with Caution when Your Policy is written in Trust
Having your policy Written in Trust is the sensible thing to do as it can avoid a hefty inheritance tax bill. There are legal elements to get a trust in place, but surprisingly, the policyholder is able to trash an entire trust just by switching to a different type of product, even with the same insurer.
It can dissolve an existing trust, setting up a new one automatically as happened here due to the execution-only option. When Trusts are involved, never instruct an insurer to make changes before getting professional financial advice first.