Not everyone needs life insurance. If you don't have any debts or maybe only minimal ones which would be covered by your disposable assets should you die, then you're fine. Not everyone has dependants and as long as there would be enough funds to settle your affairs and pay for your funeral, then you wouldn't be leaving your next of kin any headaches.
Not too many people are in this position though. Most have people who depend on them. If you're the main breadwinner of the family, have you considered what would become of them if you were no longer there to provide their needs? There would be the mortgage to pay, plus any other loans and commitments. Then there's the upkeep on the home, expenses such as running a car, holidays and maybe school fees and support through college to fund. Even if your "other half" earns a salary, it's a lot to take on. Some thought and provision now could save a lot of heartache later on.
The definition of life insurance is a policy which will pay out an amount of money on your death.
A term insurance policy is just that. It covers you for period, or term, of your life. It may be the term of your mortgage, or maybe the term which you expect your children to need financial support. In the event of your death within that term, there would be a lump sum, or maybe a series of smaller sums, for your dependants to draw on for their support and to maintain their standard of living. There is no actual cash value to these insurance policies; they simply expire at the end of the term.
A whole of life policy is one which, once purchased, will continue until your death. It is necessary to keep up the premiums or the policy may lapse, but the policy does have some cash value, should you decide that the cover is no longer necessary.
Many people take out this simple cover when they're older and feel that they'd like to leave enough money for their family to be able to cover funeral costs.
Another use for this insurance is for people who realise that their estate is going to attract inheritance tax. By doing some careful calculations, it may be possible to work out the approximate amount of tax which would be due on their death and taking out a whole of life policy to cover this amount. This could save their next of kin from having to sell any property left to them simply to pay the inheritance tax. If the policy is written "in trust", then the payout should be excluded from inheritance tax. The benefit should be easily available, enabling the family to attend to the tax side of the estate efficiently.
If you were going down this route, it would be advisable to take some financial advice. Inheritance tax planning needs some thought, but whole of life insurance is a tool often used.
Back to term insurance. Level term insurance might be taken out to cover the term of a mortgage. It is often used in conjunction with an interest only mortgage, where your capital amount remains constant. Both the premium and the sum insured stay the same throughout the term. This type of insurance would also be suitable for family protection.
A decreasing term policy is useful if you have a repayment mortgage, where the capital amount owing on your property reduces over time. The actual cover reduces in line with the mortgage balance and because the insurer would actually pay out far less should your death occur towards the end of the term, these policies are cheaper to purchase.
There are other term policies out there ? pension term and increasing term being just two of them.
If you're looking for more information, the internet's the place to look. Don't search for an individual insurer though. A broker will have the facility to search out some quotes for you from a range of suppliers. They also have a wealth of experience and will be able to offer some sound advice.
Don't delay though. It's really very easy to arrange some simple, uncomplicated cover and it's well worth thinking about.
Amount Of Life Insurance
No-one likes to think about the worst that could happen. But proper life insurance cover could protect your family, providing them with the means to cope financially should you pass on. Life insurance cover is divided into three main types. Here is our jargon-busting guide to de-mystifying what they are, and what they mean:
? First we have the level term policy. This pays a one-off cash payment when you die. The amount is agreed when you take out the policy and does not change.
? An increasing term policy is also known as indexed insurance and the amount paid out changes with inflation. Some policies of this type may have premiums that rise with inflation too, but some do not.
? Lastly a decreasing term policy pays out an amount on death that decreases through time, getting smaller as the policy progresses. A long-lived customer may even outlive the point where the policy pays anything at all.
These policy types often form part of loan or mortgage deals. There are benefits to each type, depending on the loan or mortgage it is being used to safeguard.
Level term policies are most usually used with interest only mortgages. This type of mortgage does not reduce the capital you borrowed with time ? you only pay off the interest. When you die, the capital amount is paid off by the insurance policy payout. Whatever may happen with inflation, it does not change.
Increasing term policies cost more, but offer protection against inflation.
Decreasing term policies are usually used with repayment mortgages. In this type of mortgage the capital is paid off along with the interest, decreasing the amount you owe. This type of insurance has lower premiums than level term insurance.
Term policy payments can be settled in two ways: either as a single or ?lump? sum, or as ?family income benefit?. This second method means that an agreed amount is paid to your family as an income for the remaining duration of the policy. The method you use affects the cost of the premium you will have to pay. If you consider that the longer a policy holder lives, the fewer family income payments an insurance company will have to make, you can see why this type is cheaper.
So far, we have only discussed insurance for mortgages and loan payments. These are both useful, but there are other things you can do to ensure peace of mind.
A typical, average family, it is estimated, will need insurance for both parents worth at least ?150,000 in insurance for each child, in addition to any death-in-service benefits you may expect ( these usually come with your employment). Taking the option of family income benefit, it's recommended that you should allow for an income of ?20,000 to ?25,000 a year for each child.
There is another alternative form of life insurance. It pays out a guaranteed sum on the death of the policy holder (the sum assured), and is known as whole of life. The terms for this type of insurance vary.
You can also buy life insurance bundled with your pension fund. This gives you the opportunity of getting tax relief on the premiums you pay. A higher rate tax payer can get ?100 worth of life insurance for only ?60, which makes this an attractive method to some. On the downside, higher administration costs for this type mean higher premiums overall, so basic tax rate payers may prefer to shop around and compare to make sure they get the best deal.
Some couples take out a joint policy covering both at once, but it's better to take out individual insurance. The reason for this is that a joint policy pays out only once, when the first partner dies, but individual policies pay out for each partner.
We've given an overview of the different policies and what might be best for you here, but for more in-depth and up-to-the-minute advice we recommend finding an Internet insurance broker. Surf onto the ?net, and into a great deal ? and peace of mind for you and your family, hopefully for many years to come!
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