For many the thought of embarking on a life insurance policy might feel like something they want to put off. After all, whilst you still feeling young and a long way from deaths door it could all seem a bit morbid. Stop to consider things rationally though and it really does start to make sense. Think about the position your family would be left in if you passed away and they were denied your financial contribution
To be blunt, for anyone with a family depending on their income life insurance is a must. Essentially, as with any insurance policy, you’re paying for piece of mind, the confidence that should those who mean the most to you no longer be able to depend on your financial support they will at least be able to maintain the standard of life you would want them to.
If you are the main breadwinner it should at least be a priority to have enough life cover to pay off your mortgage and other significant debts, leaving your family with the burden of debts they can’t afford to pay off isn’t something anyone would want as a legacy. Yet somewhat surprisingly as many as a quarter of homeowners don’t have enough cover to pay off the mortgage, a fact which serves to point towards a gaping disparity in the UK between the cover we should have and that which we currently do have reports suggest we’re a staggering 2,000,000,000,000 short!
So if you haven’t already it really is time to give life insurance some though, here’s a brief guide to the options:
The basic types of policy are term insurance, endowment insurance and whole life insurance.
Of these term insurance is the most affordable option. This is a policy that will run for a specific period of time as chosen by you at the time of application. There are a few possibilities here level term insurance where the sum insured will remain level, decreasing term or mortgage protection insurance which will see the sum decreasing in line with the reducing balance of a capital repayment mortgage or increasing term where the sum will increase according to RPI or a fixed percentage. It is worth bearing in mind that the policy will only pay out if you expire before it does.
As the name suggests whole life insurance provides cover throughout your life and will only end at the point of your death, regardless of how old you live to be. In many cases they will be associated with an investment and thus prone fluctuating premiums. Whole life insurance isn’t going to be cheap, you’re basically buying a guaranteed payout.
Endowment policies are often taken out with decreasing term insurance to hopefully counterbalance diminishing payout based on a decreasing mortgage debt. Their accumulation does however depend on investment markets so nothing is guaranteed.
Copyright (c) 2007 Jay Smith
