Life Insurance for Godparents UK

Becoming a godparent is a profound honour. It’s a role that transcends a simple title bestowed at a christening or naming ceremony; it’s a lifelong promise to support, guide, and care for a child. In today’s world, this commitment often extends beyond moral and spiritual guidance to a deeply felt responsibility for the child's future wellbeing.

Many godparents ask themselves: "If something happened to me, or to the child's parents, how could I ensure my promise of support continues?" This is a serious and loving question, and the answer, for many, lies in a practical and powerful financial tool: life insurance.

This comprehensive guide explores how godparents in the UK can use life insurance and other protection policies to create a secure financial legacy for their godchildren, turning a heartfelt commitment into a tangible and lasting gift.

Can godparents use life insurance to protect their commitments?

The short answer is a resounding yes. A godparent can absolutely use life insurance to provide a financial safety net for their godchild. This is a common and increasingly popular way for godparents to formalise their cherished role and ensure their support can be felt for years to come, even in their absence.

The mechanism is straightforward: you, the godparent, take out a life insurance policy on your own life. You then legally specify that, in the event of your death, the financial payout should go to your godchild. This is typically done using a simple legal arrangement called a Trust.

By doing this, you can guarantee that a sum of money—whether a single lump sum or a regular income—is available for your godchild's future. This money could be used for:

• University education: Covering tuition fees and living costs.
• A deposit for a first home: Giving them a crucial step onto the property ladder.
• General living costs: Helping their guardian with the day-to-day expense of raising them.
• Life milestones: Funding a wedding, a gap year of travel, or starting a business.

Essentially, a life insurance policy allows you to pre-fund your promise, ensuring that your wish to help your godchild is fulfilled, no matter what life throws your way.

Understanding the Role of a Godparent in the 21st Century UK

The role of a godparent has evolved significantly. While its roots are in religious tradition—the Church of England, for instance, still performs over 1,000 baptisms each week—the modern interpretation is often much broader.

For many, being a godparent is less about religious instruction and more about being a constant, positive presence in a child's life. It's about being an alternative trusted adult, a mentor, and a source of unwavering support. This emotional bond often comes with an unspoken financial promise. You might contribute to their savings, buy significant birthday gifts, or simply imagine helping them out with major life expenses in the future.

This raises the critical "what if" questions:

• What if you were no longer around to offer that support?
• What if the child's parents passed away, and their new guardian needed financial assistance to provide the life the parents would have wanted for them?

According to the Child Poverty Action Group, the estimated cost of raising a child to the age of 18 in the UK is over £166,000 for a couple. If a guardian unexpectedly has to take on this cost, the financial strain can be immense. While a godparent isn't automatically a legal guardian, they are often the first person to step in with practical and financial help. A life insurance policy is the ultimate expression of this desire to help, providing funds precisely when they are needed most.

How Life Insurance Creates a Financial Safety Net for Your Godchild

Life insurance is a contract between you and an insurer. You agree to pay a monthly fee, known as a premium. In return, the insurer promises to pay out an agreed sum of money if you pass away during the policy's duration (the "term").

For a godparent, this creates a powerful safety net. Let's look at how it works in practice.

The Core Idea: You take out a policy on your own life. The payout is designated for your godchild.

The Key Tool: The Trust Simply naming a minor (someone under 18) in a will can be complicated. The money would likely be managed by the courts, which can be a slow and restrictive process.

The best solution is to write your life insurance policy "in Trust."

• What is a Trust? Think of it as a secure legal box. You put the policy inside the box. You name Trustees (responsible adults you trust, perhaps the other godparent or a family member) to manage the box. You name Beneficiaries (your godchild) who will ultimately receive the contents.

• Why is a Trust so important?

  • Speed: The payout goes directly to the Trustees, bypassing the lengthy process of probate (administering your will and estate). This means the money is available much faster.
  • Control: You can set out your wishes for how the money is used, guiding the Trustees to use it for education, housing, or general wellbeing.
  • Tax Efficiency: For most people, a life insurance policy written in Trust is not considered part of your estate. This means the payout is usually completely free of Inheritance Tax (IHT).

Most insurers provide standard Trust forms and guidance for free, and setting one up is a straightforward process.

Real-Life Example: Sarah, Godmother to Leo

Sarah is 35 and godmother to her best friend's son, 5-year-old Leo. She wants to ensure that if anything happens to her, there will be money to help with Leo's future university education.

• Action: Sarah takes out a Level Term Life Insurance policy for £75,000, with a term of 16 years (until Leo turns 21).
• Trust: She places the policy in a Discretionary Trust, naming Leo as the main beneficiary and her brother as a Trustee alongside Leo's other godparent.
• Cost: As a healthy non-smoker, her premium is just £9 per month.
• Outcome: For the price of a couple of coffees, Sarah has peace of mind. If she were to pass away before Leo turns 21, her Trustees would receive £75,000, ring-fenced specifically for Leo's benefit and protected from Inheritance Tax.

Key Insurance Options for Godparents

There isn't a one-size-fits-all policy. The best choice depends on what you want to achieve for your godchild. Here are the main options to consider.

1. Term Life Insurance

This is the most common and straightforward type of life insurance. It covers you for a fixed period (the "term"). If you die within that term, it pays out.

• Level Term Assurance: The payout amount remains the same throughout the policy. This is ideal for leaving a specific lump sum, for example, £50,000 to cover university costs.
• Family Income Benefit (FIB): This is an excellent and often overlooked option for godparents. Instead of a single lump sum, it pays out a regular, tax-free monthly or annual income from the point of claim until the end of the policy term. This can be more manageable for a guardian, helping them cover ongoing costs like school clubs, holidays, and hobbies without the pressure of managing a large sum.

2. Critical Illness Cover

This policy pays out a tax-free lump sum if you are diagnosed with one of the specific serious illnesses listed in the policy (e.g., some forms of cancer, heart attack, stroke).

How does this help a godparent? If you were to become seriously ill and unable to work, your own finances would be strained. A critical illness payout could give you the financial freedom to keep your promises, allowing you to still provide for your godchild's birthday presents or contribute to their savings, even when you're not earning. It can also be combined with a life insurance policy.

3. Writing the Policy in Trust

This isn't a type of policy, but it's the most critical step in the process. As mentioned, a Trust ensures the right money gets to the right person at the right time, with maximum tax efficiency. Without a Trust, the payout becomes part of your estate and could be subject to delays and a potential 40% Inheritance Tax charge.

Here's a table to help you compare the main options:

An expert adviser, like the team here at WeCovr, can help you navigate these options. We compare policies from across the UK market to find the right fit for your specific goals and budget, and we guide you through the all-important Trust process step-by-step.

Insurable Interest: The Legal Hurdle (and Why It's Usually Not a Problem)

You may hear the term "insurable interest" mentioned. This is a legal principle stating that you can only take out an insurance policy on someone's life if you would suffer a financial loss from their death.

So, how does this apply to godparents?

• Taking out a policy on YOUR OWN life: This is the standard and simplest method. You always have an insurable interest in your own life. You can take out a policy and, via a Trust, name anyone you like as a beneficiary, including your godchild. There are no legal hurdles here. This is the recommended approach for 99% of godparents.

• Taking out a policy on the PARENTS' lives: This is more complex. As a godparent, you do not automatically have an insurable interest in the lives of your godchild's parents. To get a 'life of another' policy on them, you would need to prove to the insurer that you would suffer a direct financial loss if they passed away. This is a high bar to clear and is rarely a practical option.

The takeaway is simple: The most effective, straightforward, and legally sound way to protect your godchild is to take out a life insurance policy on your own life and place it in a Trust for their benefit.

Practical Steps: How to Set Up Life Insurance for Your Godchild

Ready to turn your good intentions into a concrete plan? Here's a step-by-step guide.

Step 1: Define Your Financial Goal

First, think about what you want the money to achieve. This will determine the type and amount of cover you need. Are you aiming to:

• Cover the full cost of higher education?
• Provide a deposit for a first home?
• Leave a general fund for them to use as they see fit?
• Provide a monthly income to their guardian to help with costs?

Step 2: Calculate the Amount of Cover

• For University: With tuition fees at around £9,250 per year, plus living costs, a three-year degree can easily exceed £60,000.
• For a House Deposit: The average first-time buyer deposit in the UK varies by region but is often in the tens of thousands of pounds.
• For General Support: Even a smaller sum like £20,000 or £30,000 can be life-changing for a young adult starting out.
• For Income: A Family Income Benefit policy paying out £500 or £1,000 a month can make a huge difference to a guardian's budget.

Step 3: Choose the Policy Term

The "term" is the length of the policy. It makes sense to align this with your godchild's age. A common choice is to have the policy run until they are 18, 21, or even 25, by which time they will be a financially independent adult.

Step 4: Get a Quote and Apply

The cost of life insurance (your premium) is based on:

• Your age and health: The younger and healthier you are, the cheaper it is.
• Your smoking status: Smokers pay significantly more than non-smokers.
• The amount of cover: A larger payout means a higher premium.
• The policy term: A longer term costs more.

For example, a healthy 30-year-old non-smoker could get £100,000 of level term cover for a 20-year term for as little as £8-£12 per month.

Step 5: Complete the Trust Forms

Once your policy is approved, you must complete the Trust documentation. Your insurer or broker will provide the forms. You will need to name your Trustees and Beneficiaries. Do not skip this step!

Expanding Your Financial Shield: Other Protection Policies

While life insurance is the cornerstone, other policies can complement your financial plan, especially for godparents who are self-employed or business owners.

• Income Protection: For any godparent, this is arguably as important as life insurance. It pays you a regular income if you can't work due to any illness or injury. This protects your own financial stability, ensuring you can still afford to be the generous and supportive godparent you want to be.

• For the Self-Employed: If you're a freelancer or run your own business, an Income Protection policy is vital. It acts as your own sick pay, ensuring your personal and business finances are secure, so you can continue to provide for your own family and your godchild.

• For Company Directors: You can explore Executive Income Protection, which is paid for by your limited company as a business expense. This protects your income if you're off sick, ensuring financial stability for you and all those who depend on you.

• Gift Inter Vivos Insurance: If you plan on giving a large cash gift to your godchild (or their parents for the child's benefit) while you are alive, you should be aware of the 7-year rule for Inheritance Tax. If you die within 7 years of making the gift, it could be subject to IHT. A Gift Inter Vivos policy is a special type of life insurance designed to pay this potential tax bill, ensuring your gift is received in full.

Health & Wellness: Protecting Your Ability to Be There

The best gift you can give your godchild is your time, your wisdom, and your presence. A healthy lifestyle not only increases the chances of you being there for all their major life milestones but also directly impacts the cost of your insurance.

Insurers reward healthy living with lower premiums. Taking small steps to improve your health is a win-win.

• Balanced Diet: Focus on whole foods, fruits, and vegetables. Small changes can have a big impact on your long-term health.
• Regular Activity: The NHS recommends at least 150 minutes of moderate-intensity activity a week. This could be brisk walking, cycling, or swimming.
• Quality Sleep: Aim for 7-9 hours of sleep per night. It’s crucial for both physical and mental resilience.
• Managing Stress: Find healthy coping mechanisms like mindfulness, hobbies, or simply talking to friends and family.

At WeCovr, we believe in supporting our clients' long-term health. That's why, in addition to finding you the best protection policies, we provide our customers with complimentary access to CalorieHero, our AI-powered nutrition and calorie tracking app. It's a small way we can help you on your journey to better health, ensuring you're around for your loved ones for a long, long time.

Conclusion: A Meaningful Gesture Made Tangible

Being a godparent is a unique and cherished relationship built on love, trust, and a promise of support. In a world full of uncertainties, life insurance offers a practical and surprisingly affordable way to make that promise concrete.

It is a profound act of love to plan for a future where you may not be present. By setting up a simple life insurance policy in Trust, you can create a lasting legacy of care, providing your godchild with financial security that could shape their entire future. It transforms your emotional commitment into a tangible gift that protects them, provides for them, and honours the special bond you share, no matter what happens.