Life Insurance ….
Is life insurance another expensive ploy? Our research indicates that life insurance is a worthwhile commitment depending upon your circumstances.
There are lifetime events that might lead you to consider purchasing life insurance; such as becoming a parent, getting married, a change in your income level, moving home, buying a house or taking out a substantial loan (for buying a car etc.).
What different kinds of life insurance are there?
There are many types of life insurance available which can be taken out to suit your individual circumstances and budget, such as term assurance or whole of life policies.
The idea is that you take out a suitable policy for a period long enough to cover the term of your mortgage or provide income protection in your absence. It is especially sensible if you have a joint mortgage, as If one of you were to die then it could lead to the surviving partner losing their home if they are unable to meet the mortgage payments by themselves. It is important to remember that if you die after your fixed term ends then there won’t be a pay-out.
A life insurance policy will usually be paid out as lump sum in the event of your death, but it can also be paid out over a pre-determined length of time to replace lost income. There are also many other beneficial options that you could add to your policy if your budget allows, such as Critical Illness and Income Protection. Some providers also have additional free options such as Children’s Cover or Medical support and advice.
How much cover do you need?
Ideally you should be looking at enough cover to ensure that your dependants are able to maintain their standard of living after you are gone. How much really depends on your commitments in terms of the size of your mortgage, salary, debts or number of dependents. Council research indicates that a ballpark figure is typically 10 times your current salary – although, people without children may require less cover than this.
Once you have decided how much insurance cover you need for your circumstances it is recommended that you meet with an Independent Financial Adviser who can help to find a policy that meets your needs and fits your budget. The advice provided should be free of charge as the IFA is typically remunerated by the policy provider if you decide to proceed. As with any insurance policy, it is essential you shop around to get the cover that is right for your situation and will actually pay out in the event of your death.
People tend to buy life insurance and then forget about it but a change in your financial situation or a birth, death, marriage, or divorce in your family could require you to update your beneficiaries or the amount of insurance you need. Since rates have been coming down for years due to longer life expectancies, it may also be a good idea to see if you can purchase the same amount of insurance for a lower cost, especially if your health status or lifestyle has improved. Just be sure that you’ve secured a new contract before dropping your old one.
Protecting your family is important but so is making sure you’re not wasting money on insurance that could be used for other financial needs. The key is to find the right balance for you. The Council has been advised that a basic policy may not be as expensive as you think, for example a healthy non-smoking male age 35 could obtain level cover of £100,000 for about 30 pence per day (much less than the cost of a posh coffee).
One final note on this is that even if you don’t currently need life insurance, you may still want to purchase it now. That’s because if your health deteriorates, it could be a lot more expensive or you may no longer be able to purchase it at all when you need it. So if you anticipate needing life insurance in the future, it might be a good idea to get it while you can.
A few additional points to consider when researching a policy
- My monthly income isn’t going as far …can I stop my life insurance or what should I do? Am I still covered?
- How quickly will the policy pay out in the event of death or maturity? What needs to be done to access the money?