Life insurance is an important part of any family especially if you have many financial obligations. Some people might not like to think about life insurance for the obvious reasons, but please remember that with the right coverage you can insure that your family will be taken care of if anything should ever happen to you.
Thousands of people around the world neglect to purchase life insurance creating a very strenuous situation for their loved ones. One of the most important aspects of Life insurance is that in case of your death, your family will receive a steady stream of income so that they will be able to maintain their current standard of living. Losing a loved one is hard enough so there is no reason why they should also struggle financially. The good news is that you have the power to prevent this from ever happening.
If you are in doubt and don't know how much insurance to purchase do not worry because we can help. The primary idea is to provide your family with what they will need to help them overcome any financial obligation presented by your death. To achieve this goal the common guideline is five to ten times an annual salary, but this is nothing more than very general numbers. What you should be aiming for is income replacement. Even if you already have life insurance it never hurts to make sure that your current plan provides sufficient coverage especially if your family has grown over the years. You might even find it sensible to purchase additional life insurance to provide more income to your family.
All you have to do is choose the level of coverage you require and if something might happen to you there will be a lump sum available to help your family when they need it most. With the right life insurance plan you can guarantee that your family won't have to worry about unpaid bills, taxes, funeral costs and other financial obligations after you have parted.
Life insurance will provide you with a reassurance that in case of any unfortunate occurrence, finances will be one less thing your family will have to worry about. So don't wait any longer, give your family and loved ones a gift that makes a difference. Act now and rest assured that if anything should ever happen your loved ones will be taken care of.
Life insurance is the simplest, most popular and cost effective way to financially protect any dependants in the event of your death. While it won't help those left behind to get over their loss, the benefit of a lump sum, in most cases tax-free, will guarantee your family aren't deprived of funds during an already stressful time.
With the cost of life insurance at an all time low, now is the perfect time to arrange cover. For those in good health, a policy that was taken out six years ago can be replaced today for significantly less, despite the fact that being older, one is in theory at greater risk. The industry over-reaction to the threat of AIDS initially caused premiums to rocket skywards, but when the expected epidemic failed to materialise, costs fell rapidly from the mid 1990s onwards.
Life insurance premiums vary from person to person, with factors such as age, gender, current and previous health, lifestyle, term required, occupation and smoker status all having an influence. Risk is assessed with the use of what's known in the industry as ?mortality tables? to determine the premium for a particular individual, to which a 'loading' may be added which takes further account of other factors relating to medical history and lifestyle.
Whole of life versus term life insurance
Life insurance can be split into two main types, known as ?whole of life insurance? and ?term life insurance?. In essence, as the name suggests, whole of life insurance provides cover for the lifetime of the policyholder, whereas term life insurance provides cover for the duration of an agreed period in time. For all policies it's crucial to ensure that premium payments are kept up to date to keep cover in place.
Whole of life insurance
Whole of life insurance tends to be the more expensive option, though often has the advantage of being more flexible. It can fulfil many purposes including personal protection, family protection and inheritance tax planning, and can be combined with a term life insurance policy to cover specific debts as required.
Typically, policyholders' contributions are invested and life insurance benefits are 'purchased' using the investment fund. The fund's performance, along with other factors, has a significant effect on the level of future benefits. As the policyholder's age increases the cost of the insurance increases, thus reducing the sum in the investment pot. The investment element varies from insurer to insurer; some are more generous payers than others, making the expert advice of an insurance broker or independent financial adviser invaluable in choosing such a policy. Some plans require contribution until the policyholder's death, some for a set period of time, and some up until a certain age is reached, with additional options available to cover specific illnesses or disability. The common factor throughout is that cover is maintained for the life of the policyholder, making whole of life insurance a very popular way to leave dependants a nest egg.
One great benefit of whole of life insurance is that the guarantee of a payout on the policyholder's death, at whatever point in time that may be, removes much of the guesswork involved in other types of life insurance. As long as premiums are maintained, cover is assured. Although the more expensive option, it's important to note that premiums are lower than those one would pay in later life by repeatedly renewing term life policies.
Term life insurance
A simpler option, term life insurance offers basic cover for a set number of years, usually at low cost. A term life insurance policy requires a regular premium payment and pays out a lump sum on the policyholder's death providing this occurs within the term of the policy. Death outside of the term to which the policy applies won't result in a payout, meaning the loss of any investment made, making it particularly important to be sure that cover is adequate and the term is appropriate.
Some policies can be extended to provide critical illness cover; full disclosure of all medical conditions, existing and historic, is vital when arranging this to avoid a denial of payment just when it's needed most. It's also imperative to be certain exactly which conditions the policy covers, as insurance companies are notoriously specific as to the illnesses they'll pay out for!
Term life insurance cover can be further categorised into these types:
Flat-rate (or level) cover - offers a set amount of cover for the policy term, fixed from the outset.
Decreasing (or mortgage protection insurance) cover - cover decreases over the term of the policy, often inline with a diminishing mortgage debt.
Family income benefit ? pays out a regular income rather than a lump sum during the policy term. Increasing term assurance - premiums and benefits increase each year, usually in line with inflation, allowing the protection of a lifestyle.
Convertible term assurance ? gives the option to convert to a whole of life policy without giving new information about your health.
How much cover do I need?
It's important to correctly identify your dependants? financial needs to establish just how much life insurance cover to arrange. A general rule is to choose a policy providing at least ten times your salary, but more may be appropriate, with the amount varying depending on how you intend it to be used. Basically you decide how much you want your dependants to receive in the event of your death, and your premiums will be determined accordingly.
Don't overlook factors like:
? Mortgage repayments ? Replacing the primary earner's salary ? Replacing childcare ? Education expenses ? Outstanding debts ? Support for a business partner
What do I need to look out for?
Before signing anything, look carefully at the terms and conditions of your proposed life insurance policy giving particular attention to any regulations pertaining to payouts. Some policies may not, for example, pay out if death is caused by participation in certain dangerous sports or activities.
In the case of index-linked policies which allow for economic change, it's important to establish whether the policy is linked automatically or whether there's the need to opt-in to linkage each year; failure to do so could result in being locked out of future linking.
Though life insurance payouts are usually tax-free, there are circumstances where taxes will apply. A life insurance policy can be placed ?in trust? to protect revenue and provide payment more quickly, though this is a complex issue which needs professional advice for clarity before proceeding.
A joint-life policy is a popular and often less expensive option for couples which covers the two of them simultaneously, with options for payout on a first-death or last-survivor basis.
How much will it cost?
The cost of each different policy offered by a life insurance company varies widely, and depends on a number of factors: the type of policy, the length of the policy term, the size of the death benefit, the flexibility of the policy, number of people covered by the policy and so on. The only certainty is that the longer you delay getting life insurance, the more expensive the premiums will be!
Both Joshua Watson & Clare Mactaggart are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.