I have a mortgage: do I need life assurance?
'Assurance vie' can be a beneficial French insurance to protect against inheritance tax, especially if your French property will go to a non-blood relative.
In most but not all circumstances life assurance is only necessary when you don’t have sufficient capital or income to survive without the deceased being around any more, although a French policy know as an 'Assurance Vie' can be of great benefit what ever your circumstances for inheritance tax planning especially if you are intending on leaving an inheritance to a non blood relative.
However the average 30/40 something couple with children are unlikely to have sufficient capital to deal with the prospect of one of the parents dying even if the house is paid off by the policy with the mortgage, so they are likely to need some protection against something happening to one of the parents. For example if the father earns EUR 50,000 each year, and the spouse works a few hours a week part time and looks after the children. If the father was to die she would be EUR 50,000 a year worse off, does she need life assurance? I think we can see what the logical answer is going to be. What if it was the mother died before the father? He would now have to arrange daytime child care for the children, as well as probably also needing to pay for some assistance with the day to day maintenance of the home so there is also a strong case for covering the spouse as well.
The fact remains that very few people are planning on dying right now so why introduce another bill? Let’s look at some numbers. How much does it cost to cover an average family car for a 35 year old? Before being bombarded with quotes, let’s say it’s EUR 500 per year. What benefit is being covered? Around EUR 15,000, so for EUR 500 p.a. one receives EUR 15,000 cover. How much buildings insurance and contents cover could you get for EUR 500 p.a.? I will guess at EUR 150,000 buildings and EUR 50,000 contents. This seems to be a better deal than the car at least. With both of the examples above, the choice is not really given as you must have car insurance and most people want the security of having buildings and contents insurance.
Now let’s take our couple and see how far the EUR 500 p.a. will go to give them some life assurance. Assuming a fixed term of 20 years until their children are off their hands, this could buy both of them cover of over EUR 150,000. In reality, this probably is not enough to cover their needs but just goes to show what benefits apply to different types of policy.
There are a number of different types of life assurance policies like ‘Whole of Life’ policy which are an investment linked life policy that has a cash in value, the benefit of this would be that you have a cash lump sum if you decided you no longer required the cover. Another option would be ‘Term Assurance’ policy which provides specified amount of life cover, for a specific period and premium agreed at the start of the contract. The main difference with this type of policy is that it does not have an investments link to the policy so has no cash in value, however because of this the premiums are traditionally more competitive. Both of these options can be funded by regular or single payments but the cost need not form a large part of your budget, and should be seen as essential as the premiums you pay on other insurances as your car is unlikely to pay any tax bill for you!
This information is only provided as a guide and, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different.
Steven Grover / Expatica
If you have a question, want to arrange for a free financial review or just want further information, contract Steven Grover on +33 (0)325461631, via his website www.financialexpat.com or via e-mail firstname.lastname@example.org.
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