Understanding Life Insurance: A Crucial Tool for Financial Protection
On 4 September 2024, AfroUK Parenting hosted the first financial webinar with Mr Clint Ahrendt, empowering our members with financial information. We've summarised the crucial points from the session.
Life insurance is an essential financial safeguard designed to provide financial security to families in the event of the death, terminal illness, or accident of the breadwinner/relative (known as the policyholder). During the recent AfroUK Parenting Financial Empowerment Webinar, the discussion led by Clint shed light on the importance of understanding life insurance and its various facets, particularly for individuals and families in the UK.
Types of Life Insurance Policies
Clint highlighted three main types of life insurance policies available in the UK:
1. Level Term Insurance: Provides a fixed lump sum payout throughout the policy term, ideal for covering mortgage debts, funeral costs, and providing financial stability to a family.
2. Decreasing Term Insurance: Tailored to align with mortgage repayment, this policy gradually reduces in value, ensuring the mortgage is paid off but offers decreasing coverage for other family needs.
3. Whole of Life Insurance: This policy is designed to last for the entirety of one’s life and provides a payout upon death. Though more expensive, it guarantees a payout regardless of when the policyholder passes away.
Understanding the right type of policy is essential, and Clint advised that while whole-of-life policies are ideal for those without budget constraints, term policies may be more suited for individuals with specific debt repayment needs.
Trusts and Life Insurance
One of the standout points discussed was the importance of placing life insurance policies in a trust. Setting up a trust can significantly expedite the payout process, offer tax efficiency, ensuring that beneficiaries receive the financial benefit without the delays or a total of 60% financial loss associated with inheritance tax or probate (this the legal process that takes place after someone dies to administer their estate, which includes managing and distributing their assets (such as property, money, and personal possessions) according to their will. If there is no will, the estate is distributed based on the laws of intestacy.). Clint strongly recommended this step for families seeking to maximise the value of their policy payout.
Estate Management and Lasting Power of Attorney
In addition to life insurance, Clint stressed the significance of broader estate management, particularly in mitigating the tax liabilities and legal complexities associated with inheritance. Placing assets, including life insurance policies, into a trust can protect them from high inheritance tax, probate costs, and capital gains tax.
Clint also delved into the importance of Power of Attorney (PoA) and Lasting Power of Attorney (LPA) to ensure that trusted individuals can manage finances and healthcare decisions should the policyholder lose mental capacity (becomes too unwell, confused or unconscious). He emphasised choosing attorneys (family members we can trust to manage our money efficiently for the benefit of our family) based on practicality rather than emotions and encouraged all participants to consider setting up an LPA for efficiency and peace of mind.
The Role of Life Insurance in Building Generational Wealth
Clint emphasised that life insurance should not be viewed solely as a means of debt repayment but also as a tool for building generational wealth, especially within African communities where financial planning is often overlooked. By ensuring adequate coverage and structuring life insurance policies effectively, families can protect themselves from financial struggles and create a legacy for future generations.
Next Steps for AfroUK Parents
The webinar concluded with actionable steps for participants, including
Reviewing their current policies to ensure it is right for you and your family.
Considering the use of trusts to safeguard your money from insurance and avoid looking 60% of your payout money
Understanding the legal protection offered by a Lasting Power of Attorney.
AfroUK Parents were also encouraged to share financial information on life insurance and estate planning to ensure more individuals benefit from these financial insights. More African families are disadvantaged from lack of awareness of how to create financial protection and build generational wealth.
In conclusion, life insurance is not just a financial product—it is a cornerstone of family financial planning and stability. From protecting loved ones from financial burdens to facilitating generational wealth transfer, understanding the nuances of life insurance and estate management can provide long-lasting benefits for individuals and their families.
Contact: Clint Ahrendt
One Financial Group
One Estates (Property Sales & Management
M: 07896 697 226
T: 0113 208 3308
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