It’s an odd one, life insurance, because it’s the one insurance that you’re never going to benefit from, perhaps that’s why less than a third of U.K. adults have life insurance cover.
Many people only take it out because it’s a mortgage requirement, they take what they’re given and don’t give much thought as to whether this is the best product they could buy, so here are some suggestions for things that you should consider.
Should you get life Insurance?
If you have absolutely no dependants and no mortgage that requires you to do so, then the answer is probably no. However that is a situation which applies to a relatively small number of people. If you are in a relationship and have children, you need to consider what would happen to the family finances if you were to pass away prematurely.
The cost of raising a child from birth to twenty-one is currently estimated at around £200,000 and that’s without private education. Add to that any debt you may have, the annual financial contribution your income makes to the family and your funeral expenses and you’ll have an idea of the kind of sum required to ensure that your family don’t suffer any financial hardship as a result of your death.
The decision you have to make is how much can you afford to spend each month to give you peace of mind. If you are a stay at home parent you need to consider the cost of replacing your contribution to family life.
Level term cover vs decreasing term cover
You may choose life insurance which runs for your entire life no matter what age you live to but if you do so that means that you will need to continue paying premiums or your insurance will be invalidated.
Most people assume that in later life their mortgage will be paid off and their children financially independent and therefore they opt for a set term, usually about twenty-five years.
Level term cover means that if you were to die at any stage during the term of cover the pay-out would be the same, it also means that the monthly premiums remain the same.
Decreasing term cover will enable you to pay increasingly smaller premiums as time goes by and the pay-out in the event of your death will shrink accordingly.
Joint life insurance
Instead of you and your partner having individual insurance cover, you might opt for a cheaper joint cover. With this form of cover, the insurance pays out on the first death and the policy is then ended. This will leave the survivor without life insurance.
If the relationship were to break down there might then be difficulties transforming joint cover to single cover.
Life Insurance for the over-fifties
Once past fifty, many of us might wish to restructure our financial arrangements and reconsider the type of life insurance we hold. Do you want insurance simply to cover funeral expenses or do you wish to leave dependants a nest egg?
Whole life insurance will pay out a fixed sum at whatever age you die but were you to live on into advanced old age you might well have paid in more than the final pay-out.
How to keep the cost down
If your life insurance is the one presented you by your mortgage provider, you are almost certainly paying more than you need. Make sure that you have the most appropriate cover at the best price by using a broker.