Life insurance bargain time

by : Michael Challiner

How can any one know what’s around the corner? It’s probably something you’d prefer not to dwell on, but accidents and fatal illnesses can happen, with the result that your family could be left to look after themselves. Apart from the shock and distress suffered by them, there is the financial aspect. Could they deal with the financial commitments and any debt without your income? This is where life insurance can give you and your family peace of mind that, should the unthinkable happen, at least they could cope financially.

The good news is that the cost of life insurance has become much more affordable than it used to be, particularly the most common form, which is “term insurance". Term insurance is designed to pay a cash sum if you die within a certain period or term. This is specified at the outset of the insurance and can cover you for whatever period you specify. The policy will have an expiry date and if you survive to that date, the policy ends.

Quite simply, a level term policy is one which pays the benefit on death. The benefit remains constant throughout the term. This type of policy is often purchased to cover mortgage or loan repayments, quite often in conjunction with interest only mortgages. These are becoming increasingly popular, but as they don’t reduce over the years, this type of cover is worth considering as your mortgage is always covered.

Then there are the increasing and decreasing term insurances. With an increasing term (or indexed) policy, the amount paid out will rise in line with the rate of inflation, although this may be reflected in the cost of the premium. With a decreasing term policy, the amount of benefit which would be payable on death reduces annually, until there is a zero amount left at the end of the term. Often this would be used in conjunction with a repayment mortgage, where the capital value is reduced over the mortgage term. The cost of a decreasing term policy is likely to be less than with a level term one.

There are two ways in which policies pay benefits – either by one lump sum paid out to your beneficiaries or alternatively as a family income benefit. With the family income benefit your dependants receive a set amount per annum until the end of the original term.

Family income policies are often timed to coincide with the time when the youngest child is expected to become independent. The premiums tend to be lower than with a lump-sum policy due to the fact that should the insured person die towards the end of the term, the insurance company would only have a relatively short number of years in which they would have to pay out the annual sum.

It’s worth checking that you’re not already covered by your employer for some form of life cover. Some companies provide death in service benefits. These could pay out two to four times your basic salary.

When doing your sums on the amount of cover you’d need, it’s usual for an average family to cover both parents for around ?150,000 per child, assuming there is some death-in-service benefit. If you’re planning on a family income benefit, then it’s suggested that you go for ?20,000 plus per child per year.

It is recommended that couples should take out individual life insurance. There is little difference in cost, but where a joint policy pays out only once, on the death of the first partner, with an individual policy each partner is covered.

The benefits of life insurance are invaluable to your family. If you’re no longer around to care for them they’ll be guaranteed financial stability.

Do give this some thought. Find out just how much these various types of cover are going to cost, you’ll probably be pleasantly surprised. There’s never been a better time for bargains. There are on line insurance brokers who will offer policies to suit all budgets and family needs. They’ll do all the searching for you and come up with the right policy for you.