Insurance World

The cost of life insurance has fallen over the past few years and there’s now more choice than ever, at prices that won’t break the bank.

If you have a family you could provide security for them by taking out adequate life insurance cover. In the tragic event of your death they would have enough to cope with, without added financial worries.

There are various types of life insurance and here we cover the types of term policies on offer.

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A level term policy pays a one off cash payment on death. The amount insured stays the same throughout the period of cover.
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An increasing term policy is another term for indexed insurance. The value of the final payout rises in line with inflation. Depending on the terms of the policy, premiums may also rise accordingly.
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A decreasing term policy is designed around the fact that the amount payable on death will reduce through the term of the insurance, right down to a nil balance at the end of the term.

The policies are often used to safeguard loans and mortgages. The policies above each have their own merits, depending on the type of mortgage you are guaranteeing.

The level term policies are often purchased to cover interest only mortgages, where the capital borrowed does not reduce over the years. The capital sum, remaining the same as the original, is covered by the cash payment on death.

Increasing term policies offer the protection against inflation, but are correspondingly more expensive.

Decreasing term policies are often used for repayment mortgages, where the capital amount owing decreases over the term of the mortgage. Premiums will be lower for this type of policy, compared to level term insurance.

Benefits from term policies can be paid out in two ways. The first is via a lump sum payment and the second is via a “family income benefit”. As far as the second method is concerned, your family would be provided with an agreed annual income for the remaining term of the policy. The cost of policies will be affected by the choice of how the payment is to be made. The insurance company will potentially pay out less money overall if the insured person lives until the later years of the insurance term. Because of this the cost of family income policies will be lower.

So far we have talked about covering mortgage and loan payments. Whilst this would certainly be a weight off the minds of your family, further cover should obviously be considered. When working out just how much money your family would need, should the unexpected happen, it is recommended for an average and typical family, each parent should have at least Ј150,000 worth of insurance per child, plus any death-in-service benefits, which are often linked with your employment. If you choose to take the family income benefit, then it is thought that you should plan for an income of between Ј20,000 to Ј25,000 per child per year.

Another type of life insurance is known as whole of life. This pays a guaranteed amount, known as the sum assured, on the death of the policyholder. There is no specified term on this type of insurance.

It is possible to purchase life insurance with your pension fund. If you choose this method of purchase, you will be allowed tax relief on the premiums, so a higher rate taxpayer will get Ј100 worth of life insurance for just Ј60. However, due to higher administration costs, premiums will be likely to be higher and it is felt that this could cancel out any gain to basic-rate taxpayers.

Rather than opt for a joint policy, it’s better for couples to take out individual cover. A joint policy pays out once, on the death of the first partner, whereas the individual policies will pay out twice.

Get on to your broker – you’ll find one easily if you log on to the internet – and find out the costs of protecting your family. It’s worth it for your peace of mind.

No one likes to think about the consequences of death and its affects on those that we leave behind. It is however an indisputable fact that sooner or later we will all shuffle off our mortal coils, often without warning. When that time comes a life insurance policy will ensure the financial security of our loved ones in their grief, and will ultimately give each of us the peace of mind that our mortgage is paid off and our families taken care of when we die.

Life insurance these days is in fact fairly cheap to maintain. Increased competition in the life insurance marketplace, coupled with its ease of purchase over the Internet has bought premiums down to record low levels. You can now obtain a life insurance policy that pays a lump sum of Ј100,000 upon your death for as little as Ј5 per month.

How Much Insurance Do I Need?

Those that do decide to take the plunge and sign up for a life insurance policy though often struggle to decide how much insurance they should take out. As life premiums go up in line with increases in the sum insured, the ultimate insurance amount is often dictated by how much the person taking out the life insurance can afford to pay each month.

Then there is the thought of the mortgage. If we are still owing money on the mortgage when we depart this world, many of us would not want to see our loved ones struggle to meet the mortgage repayments each month. The amount of insurance taken out therefore should at least cover the cost of our mortgage, or what is left on the mortgage as it would be if a reducing term life product is purchased.

Protect Your Mortgage

In fact, many mortgage lenders these days insist that life cover is taken out to protect the mortgage repayments in the event of the owner’s death. On joint mortgage applications, a joint life policy is strongly recommended by lenders, and in some instances mortgage lenders will include a basic life policy in with their mortgage products that reduces in line with the outstanding amount to pay. However, life cover issued direct by mortgage lenders may not always be the cheapest insurance policy available. It therefore pays to shop around for life cover on the Internet as you may be able to save Ј15 or Ј20 on your insurance premiums each month.

Deciding on the amount of insurance coverage

So, how is it best to decide on the amount of insurance coverage? It varies for each family / individual, but in general you should take out a life policy not only to cover the cost of your mortgage but also to provide your family and dependants with a lump sum after you’ve gone. What lump sum you decide upon will depend on many factors, but it should at least cover the cost of your monthly household expenses minus the mortgage payments.