Insurance World

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.

Discussing the need for life insurance is never a pleasant topic, and certainly combined with talk of mortgage payments, it can be downright distasteful. But it is your responsibility as the principle breadwinner in your home to consider what might happen if you or your spouse were to perish. Would your spouse be able to meet the most basic needs of food and shelter? While the money necessary to pay for basic amenities like food and transportation are attainable through a single income source, most families simply cannot afford to meet their most basic requirement, the mortgage payment, without the income from both spouses.

How it Works
If you are in this situation, it is important to take the necessary precautions in case you or your spouse dies unexpectedly. While saving enough to cover your mortgage is certainly an ideal solution, it is largely unfeasible for most contemporary families. As a result, individuals often opt for mortgage protection life insurance policies. These policies are designed specifically to meet the needs of your home mortgage payment in the event that you or your spouse dies.

The idea behind mortgage protection life insurance is simple: you pay a monthly premium in exchange for which the insurance company agrees to pay off the rest of your mortgage should you die.

Pricing
Pricing for mortgage protection life insurance policies parallels that of traditional life insurance price criteria. For example, if you smoke your rates will be higher, just as if you are an older individual. But certainly the most determinative factor in your price will be the amount of coverage you need. The more you owe on your home, the more insurance you will need to pay it off, which of course means the more expensive the insurance premium will be.

Alternatives to Consider
While mortgage protection life insurance will cover your mortgage payment, as all home owners know, this is only part of the cost of owning a home. In addition there are taxes and repairs to prepare for. For a family that has lost a breadwinner, making these types of allocations can be difficult. As a result, many individuals opt for coverage which goes beyond just mortgage protection and instead provides payments sufficient to cover all the expenses associated with owning a home. This type of insurance often comes in the form of a term life policy which is for an amount which exceeds the price of your home. Of course, this extra coverage comes with a price. But with this coverage also comes quite a bit more flexibility. Under a term life policy your family is not bound to pay off the house with the money they receive, but can instead use it in whatever manner they feel most compelled to. This can be especially helpful if there are other medical costs to consider or if you have children approaching college age.

Life insurance is not a pleasant concept to consider because it requires that we think about the potential for our own demise and the resulting consequences of our death. It is vital, however, that as individuals who are responsible for the financial support of others, we consider these difficult questions and decide whether a life insurance policy is the best solution for us.