Surviving the death of a breadwinner

How can you keep your family finances alive? Julian Knight and Chiara Cavaglieri report

These may be modern times, but millions of families are still relying on a sole breadwinner to keep their finances afloat.

Too few, it seems, think about what would happen if the family breadwinner dies, according to a new study from insurer Friends Provident. Twenty-four million people in Britain have no life cover in place. What's more, the study shows that even those who have considered getting cover would underestimate their family's income needs by an average of £14,500 a year.

And even if a loved one has died, there are still financial obligations to be met. "Generally, mortgage and credit card firms are sympathetic but it doesn't happen all the time," says Meg Van Rooyen, a spokeswoman for National Debtline. "There can be a miscommunication or the bereaved may be too upset to say anything. Lenders may even continue writing letters to the deceased and can start debt collection proceedings."

For those thinking about life insurance, determining how much cover to take out can be tricky. The minimum should be enough to clear any outstanding debts and provide a lump sum for your dependants. Calculate the amount you would need to sustain your current standard of living over an average 12-month period, multiplied by 25 years. Even if you already have life cover, it may not be adequate if your situation changes.

You should begin by clarifying what level of protection you already have in place. See if you are entitled to any death-in-service benefits which may be linked to your pension or an insurance scheme set up by your employer. If you die before retirement, your nominated beneficiary could receive up to four times your annual salary as a tax-free lump sum. Unfortunately, employers are making big cutbacks on these kinds of perks. "Clients should still consider putting in place their own cover because if they change jobs, are sacked or are made redundant, then the death-in-service benefits will be lost, and dependent upon the client's health at that time, replacement cover may not be available," says Scott Gallacher from independent financial adviser (IFA) Rowley Turton.

The younger and healthier you are, the cheaper it will be. Smokers planning to kick the habit in time for No Smoking Day on 10 March can also save money after a year of not smoking. Quotes obtained by broker show that a 30-year-old man who smokes could get £150,000 of level term assurance over 25 years, with guaranteed monthly premiums, from Royal Liver for £14.32 per month. As a non-smoker that could drop to just £8.84, saving him £1,644 over the lifetime of the policy.

Premiums can vary widely, with some providers aggressively marketing themselves to particular groups of individuals. Protection broker Cavendish Online does not offer any advice but it will search the market for you and give up its commission in exchange for a one-off fee of £35.

If your circumstance are more complicated – if you have a chronic medical conditions or wish to set up a trust – consider getting help from an IFA or advisory brokers such as Lifesearch and Torquil Clark which offer free telephone advice and quotations. Taking advice will cost more than an execution-only broker but is preferable to taking out an inadequate policy.

"When dealing with more complicated issues and inheritance tax, it could pay to get advice so that the action you are taking is appropriate," says Stephen Smith from IFA Davison Smith. "Using an adviser on a fixed-fee basis ensures that you can obtain the right cover as cheaply as possible."

The cheapest way to protect your dependants is with a term assurance policy which pays out the sum if you die within a set period of time, normally 15, 20 or 25 years. Premiums are significantly more expensive with a whole-of-life policy, which guarantees to pay the sum assured upon your death. Many people use the number of years left on their mortgage as a guideline when determining the length of their term assurance policy, but you can then set the level of cover to remain level throughout the term, decrease over time (often to mirror a repayment mortgage) or increase over time (to protect against inflation).

Family income benefit may be more suitable and is often cheaper than standard life cover. Instead of a lump sum, this pays out a tax-free monthly income from the date of death until the end of the policy term. If you have a plan term of 20 years and the claim is made after 16 years, benefits would be paid for the remaining four years.

Have your policy written into trust so that it does not form part of your estate and be liable for inheritance tax. It will also avoid the need to wait for probate to be granted and the death benefits are payable much sooner.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Life and Style
The 67P/CG comet as seen from the Philae lander
scienceThe most important scientific breakthroughs of 2014
Arts and Entertainment
Ian McKellen as Gandalf in The Hobbit: The Battle Of The Five Armies
Arts and Entertainment
Sarah Koenig, creator of popular podcast Serial, which is to be broadcast by the BBC
tvReview: The secret to the programme's success is that it allows its audience to play detective
Ruby Wax has previously written about her mental health problems in her book Sane New World
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Marketing Services Manager - (communications, testing, DM)

    £32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

    Guru Careers: Finance Account Manager

    £Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

    Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

    £40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

    Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

    £45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

    Day In a Page

    Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Could cannabis oil reverse the effects of cancer?

    Could cannabis oil reverse effects of cancer?

    As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
    The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

    The Interview movie review

    You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
    Serial mania has propelled podcasts into the cultural mainstream

    How podcasts became mainstream

    People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
    Jesus Christ has become an unlikely pin-up for hipster marketing companies

    Jesus Christ has become an unlikely pin-up

    Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
    Rosetta space mission voted most important scientific breakthrough of 2014

    A memorable year for science – if not for mice

    The most important scientific breakthroughs of 2014
    Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

    Christmas cocktails to make you merry

    Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
    5 best activity trackers

    Fitness technology: 5 best activity trackers

    Up the ante in your regimen and change the habits of a lifetime with this wearable tech
    Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

    Paul Scholes column

    It's a little-known fact, but I have played one of the seven dwarves
    Fifa's travelling circus once again steals limelight from real stars

    Fifa's travelling circus once again steals limelight from real stars

    Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
    Frank Warren column: 2014 – boxing is back and winning new fans

    Frank Warren: Boxing is back and winning new fans

    2014 proves it's now one of sport's biggest hitters again
    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas