By risk specialist Lynda Taylor B.B.S and GDipBus (Personal Financial Planning) Licensed Financial Adviser FSP 9752
Well, it might, and it might not!
I had this very conversation with clients recently. As part of their financial data, we were advised that there was a likely inheritance of $500,000. Logically this would reduce the amount of life insurance that was required, right? What we must be “real” about however is if the one likely to inherit predeceases their parents, will that money still be paid to their spouse? Various conversations I have had with clients over the years would indicate that this is not necessarily the case. Some prefer to leave their estate to their grandchildren and bypass their child’s spouse OR they may choose to leave a lesser amount to their daughter-in-law or son-in-law and the balance to their grandchildren.
There is no right or wrong answer – it is highly personal and can be a delicate conversation to have. This is evident in my own situation where I grew up in a household where discussions re finances were the norm. My husband by comparison has never discussed incomes, savings, debt with his parents. As such we are very clear regarding my parents’ estate plans but have no clue as to my in-law’s wishes.
Of course, the other issue is timing – a potential inheritance may not materialize for many years …. if at all. A prudent course of action may therefore be to have life insurance in force, and therefore certainty for your family, and then reduce the levels of cover as your need for it diminishes. This could be because of your own wealth creation, reduction of debt, and children becoming independent.
The key is to discuss these issues and plan for the likely outcomes. The cost of life insurance may not be that high depending on the age of the clients involved and by having it in place you ensure that your spouse is not left high and dry as you have a misplaced expectation of inheritance going to your spouse. Equally, if you are aware of a likely inheritance, the levels of life cover required may be less than what you have in force.
Another conversation commonly had with younger clients who have had financial assistance from one’s parents to buy their first home is “if you were to pass away suddenly, would your parents want the deposit lent to their child repaid at some point”? If the answer is “yes” then we need to provision for this with life insurance. The arrival of grandchildren may well change the expectation of the parents, but it is so important that there are conversations around these topics and expectations. When faced with terrible loss, a family needs to pull together, yet discussions around money often cause further distress at these times.
As your adviser helping you to navigate and mitigate financial risk, it is my role and responsibility to ask these difficult questions and prompt thought around the issues so that you have insurances in place that really do reflect your position.