Insurance World

My father died when I was nine. He left behind my mother and four children aged between seventeen years and nine and no money. Sure I missed him but at nine I didn’t really have much idea about death or loss. I know it sounds selfish but what I really missed was our old lifestyle. We had to move house because we lived in a company house and couldn’t stay there anymore. We had to give up our car because that was provided by the company too. All we could afford was a run down council house. It was small and cramped and didn’t have much in the way of fences so we felt we had neighbours right on top of us. This was all salt to the wound of our grief, all these niggly things that had now become our life. I don’t know why my father didn’t take out life insurance, all I know is that he didn’t and we bore the consequences of that decision for a long time.

It has made me wonder why so many people roll their eyes when the words ‘life insurance’ are uttered out loud. Sure I can understand not wanting to contemplate a scenario that would require you or your family to actually need it but that is no excuse for ignoring it altogether and not planning ahead. Imagine, just for a moment, your family’s life if the worst was to happen and you didn’t have life insurance?

The purpose of life insurance is to guarantee an income to your spouse and children if you were no longer able to contribute to their welfare like you do now. Think about it, if something were to happen to you, could your family afford to live in your current home? Would there be enough money to maintain their current lifestyle? Would the cost of a funeral become a burden? Would your spouse be able to support your family easily? Or would the stress and grief and financial burden of loosing you cause unendurable hardship for them?

Maybe you think that because you have saved and invested wisely and setup a solid foundation that despite missing you, your family would be OK financially. The reality is that it is unlikely. This is particularly true for families with young children. This is often a time where families are still struggling to become established and often debts are high, savings low, caring for children is costly and income may not be at its peak or perhaps one partner is out of the workforce to care for the children. Of course, it is this time when funds are often stretched that life insurance is most needed but often that very fact puts families off from the regular commitment of insurance premiums.

But the good news is that it makes you a good candidate for term life insurance because it is the most inexpensive form of life insurance around. The premiums for term life insurance are worked out based on your age and health and is usually purchased in terms of a specific number of years – 1, 5, 10, 20 or whatever period you would prefer. The upshot is that term life insurance has the highest coverage for the lowest premiums.

While term insurance is not ideal for older individuals as prices go up substantially with age, it is the a great solution for younger couples or families who have high debts including mortgages, life expenses and dependants. The insurance can cover you while your children grow and the mortgage is paid off. By the time the policy expires you will more than likely have invested, paid off your major debts and no longer have dependants.

So Who Needs to be Covered with a Life Insurance Policy? Given that insurance is really about income protection – providing funds when you can’t – you would normally cover whoever is contributing to the family finances. So first up, make sure the primary income earner is covered. If this income disappeared then you want to make sure the ongoing family needs are covered.

But don’t stop there. If your spouse looks after the children full-time and something were to happen to them, how would you fund childcare? Insurance could cover that additional cost. So if any secondary income is relied on to cover expenses either through income or an unpaid contribution then that person should also have an insurance policy.

Do you need to get life insurance for your children? Generally, this is only advised if you can’t afford funeral expenses (generally about $5000). Otherwise, there is no reason for children to be insured as they do not contribute to the family income.

Having life insurance not only gives you peace of mind knowing your family will be taken care of after you or your spouse has gone, it may well be one of the best financial decisions your family could make.

Have you ever worked out how much you spend on insurance? Try totting up your premiums – we suspect you’ll be surprised! You’ll be even more surprised to discover that there’s a probability that you’ve also duplicated some of the cover you’re paying for. Cut the duplication out and you’re certain to save money.

Lots of people have insurance cover for legal expenses, loss of income, theft, even death, without even realising it. This can arise because many of us don’t fully understand what’s covered by the policies we have, especially if the policies had been arranged for us by financial advisers and brokers.

In a recent survey, The Financial Services Authority (FSA) discovered that optional extras such as breakdown recovery and legal expense cover, were frequently added to car insurance without checking whether the policyholder was already covered. It’s also not uncommon to find that people with Permanent Medical Insurance have duplicated their cover via payment protection policies taken out specifically to cover their monthly payments on mortgages, loans and credit cards. The point is that if they claim on their Permanent Medical Insurance, their payout will be reduced because part of their claim is also insured through their payment protection policies – so their payment protection insurance is really a waste of money.

The Financial Ombudsman has confirmed this saying, “People often contact us when they find themselves over-insured. They often do not realise until they make a claim that they have been paying for a policy that provides very little, if any, benefit”.

There’s also ample of evidence that some of us simply don’t understand what we’re actually insured for! For example, take the case of Amanda Lariviere from West Yorkshire. Amanda, aged 42 and mother of two, is recovering from ovarian cancer and had an allergic reaction to chemotherapy which kept her off work. Out of the blue she received an unwelcome tax bill so she decided to visit her building society to find out if she could raise some cash by re-mortgaging. The adviser at the Society wisely asked her to bring with her, her life insurance policies so that they could be used to support her re-mortgage application. So imagine Amanda’s surprise and delight when the adviser explained that her policies with Norwich Union and Scottish Provident, which had been costing her Ј80 per month, were not life insurance policies at all – they were actually critical illness policies with a combined insured value of Ј100,000. She was able to claim on these policies and the Ј100,000 she received was sufficient to pay off most of her mortgage and her tax bill!

Here’s some typical insurance policies to check out.

Critical Illness Insurance

Critical Illness insurance is often sold as an optional extra within a life insurance policy. In fact that’s usually the cheapest way to buy it. However, some enlightened employers already provide critical illness insurance as part of their employment package. Ask your employer if you are one of the lucky ones!

Life Insurance

Some employers also provide life insurance cover within their pension schemes. It’s called death-in-service benefit and typically pays out a tax-free lump sum worth 3 to 4 times the annual salary if the employee were to die whilst employed by the company.

Permanent Medical Insurance and Payment Protection Insurance

Permanent Medical Insurance (PMI) is also known by some people as Income Protection Insurance. PMI pays out the insured monthly sum if the policyholder is off work due to illness due to one of a wide range of specified illnesses - and some policies will even pay out during redundancy. PMI policies pay out indefinitely or at least until the policy comes to the end of its insured term.

Few appreciate is that PMI actually eliminates the need for Payment Protection insurance – the sort of insurance frequently sold alongside loans, credit cards and mortgages to maintain monthly payments if you are off sick, have an accident or are made redundant. Indeed, you can’t make a claim against more than one policy for the same event – only one policy will agree to pay out! (All the others will reduce their payouts to the value of the money you are receiving from your other policies)

Mobile Phone Insurance Normally mobile phone policies have a hefty excess – rarely less than Ј50. You could be better saving the insurance and changing to a pay-as-you-go plan.

Legal Expense Insurance

Insurance for legal expenses relating to disputes concerning your home will usually be included free of charge within your home and contents insurance policy. Most car insurance policies provide legal expense cover as an optional extra – others even include it as standard. Some trade unions and professional associations sometimes include access to legal advice as part of their service to their members. Check these out before you pay for more cover!

Insurance for ID Theft According to “Which”, the consumer magazine, you are only legally responsible for the first Ј50 if your identity is stolen. Is it worth insuring for a Ј50 risk? Incidentally, my bank has just given me this insurance for free!

Automatic cover for credit card purchases Many credit cards automatically insure your purchases for a set period of time after you’ve shopped. Barclaycard is a good example. If you used Barclaycard to buy something valued between Ј50 and Ј2,000, you’re insured against theft and accidental damage for the next 60 days.