Today no one doubts the advantages of taking out life insurance that protects our interests and those of our family.
Within the life cycle of a person, there are unforeseen events such as illnesses and accidents. Still, we have the opportunity to anticipate the economic needs that result from contracting life insurance. Hiring life insurance is a smart decision.
The main objective of the insurance is the protection of loved ones, including ourselves, guaranteeing that, in the face of any unforeseen event, we can maintain a quality standard of living.
Life insurance offers us peace of mind and confidence by having the certainty of having financial support in the most difficult times, such as a death that drastically reduces the economic capacity of the family. When you are gone, the financial responsibilities do not go away; they become an additional burden for your family.
What if I have no family obligations? In that case, the Life Insurance may include accident or disability coverage. Suffering a disability changes life and normally generates a reduction in income at the same time as there is an increase in expenses; life insurance can offer a monthly income that compensates for this economic gap.
Years of work and planning to achieve a heritage that provides the long-awaited financial stability can be cut short in the event of disability or death.
Life insurance also ensures that cash is available to pay fees, taxes, or the professional services necessary to manage the procedures of an inheritance.
According to OECD data, the predominant business structure in all countries is the micro-enterprise with less than ten workers. In Spain, 95% of companies have less than ten workers.
If you are self-employed or a small business owner, you can guarantee the continuity of your business by taking out life insurance that allows your family to maintain their lifestyle while a new manager is appointed or the company is transferred. In addition, for the self-employed, the life insurance premium is deductible from the personal income tax return up to €500 per year.
The capitals received by the beneficiaries of life insurance are not part of the hereditary mass, therefore:
- The law allows you to do a partial self-assessment for that money, which can later be used to pay inheritance taxes.
- Beneficiaries can be freely designated, and it is not necessary for them to be the legal heirs themselves; for example, it is usual to name a bank entity as the beneficiary for the outstanding debt of a mortgage.
- The inheritance can be waived if you have debts, but the beneficiaries of the insurance will continue to collect their compensation, even if they do not receive an inheritance. For this reason, life insurance is a good formula for leaving money to your children, even if you have debts (provided that the amount of the insurance premium is not disproportionate in relation to the assets of the contracting party).
The amounts received by the beneficiaries will be taxed by the Inheritance and Gift Tax (ISD). The ISD is a tribute ceded to the Autonomous Communities that have established tax reductions that can reach up to 99% of the fee to be paid.
The following table indicates the reductions to be applied in general, although the additional deductions established by the Autonomous Communities must be added to these:
How to calculate the insured capital
The Insured Capital is the amount that the beneficiaries of the life insurance will receive.
Carrying out a conscious and responsible calculation will determine the degree of protection that we provide to our beneficiaries; it is important not to fall short so that we obtain capital that constitutes a real help for them.
The amount to be received, as a general rule, should be around five times the annual income of the family. This rule gives us a starting point; however, it is always advisable to have professional advice.
The professional Advisor will help us carry out serious and motivated planning, analyzing the situation of each insured according to their level of income, indebtedness, dependents, recurring expenses, and other risks or obligations that may appear.
Some of the most important factors to consider are:
- The outstanding amount of the Mortgage of the family home or second home.
- Other pending credits, such as the car, a loan for a reform, or other consumer credits.
- Family income, since it is not the same that the insured is the only one who contributes income in the home to that said income is also complemented by that of the couple.
- The type of family and the vital moment in which it finds itself. A family with school-age children will have to anticipate additional expenses for care and education that will not need to be taken into account if there are no children or they are independent.
- Finally, it is important to establish the adaptation time during which the economic support that life insurance entails will be essential.
So what would be the optimal insured capital?
The simplest formula:
OPTIMAL INSURED CAPITAL = ANNUAL INCOME x 5 + TOTAL OUTSTANDING DEBTS
This formula would allow our family health insurance to face a new stage in life with a sufficient economic cushion that allows them to adapt in a planned way and without stress to the new situation.