A fi­nan­cial life­line

Al­though it’s hope­fully some­thing you won’t need for many years, it’s a good idea to or­gan­ise your life in­sur­ance sooner rather than later. Here’s what you need to know

Cheshire Life - - Family Life - WORDS: El­lie Fells

It’s com­pletely nor­mal to have con­cerns about what will hap­pen to your loved ones af­ter you’ve passed away, es­pe­cially when it comes to fi­nances, and if you’re the main earner in the fam­ily you might worry about where they will get their in­come. How­ever, that’s where life in­sur­ance comes in; this is es­sen­tially an in­sur­ance pol­icy that is de­signed to pay out ei­ther a lump sum or reg­u­lar in­stal­ments of money to your de­pen­dents in the event of your death. It there­fore guar­an­tees your fam­ily some kind of fi­nan­cial se­cu­rity, and it can be used to cover things like mort­gage re­pay­ments and fu­neral ex­penses.

How­ever, it’s im­por­tant to note that life in­sur­ance is more nec­es­sary for some peo­ple over oth­ers – if you are a sin­gle per­son with no chil­dren or any other de­pen­dents, life in­sur­ance is not so cru­cial. How­ever, if you have a spouse and chil­dren or a mort­gage to pay off, then it is usu­ally well worth tak­ing out a life in­sur­ance pol­icy to cover your fi­nan­cial com­mit­ments. ‘Life in­sur­ance pur­chases are usu­ally trig­gered by im­por­tant life mile­stones,’ ex­plains

Tom Vaughan, head of life in­sur­ance at Con­fused.com.

‘For ex­am­ple, when start­ing a fam­ily, some­one might look to cover the mort­gage and liv­ing costs in or­der to look af­ter their chil­dren if a worst-case sce­nario hap­pened.’

The next step is to de­cide on the type of life in­sur­ance pol­icy that you want: the two main types are a ‘term’ pol­icy or a ‘whole of life’ pol­icy. The for­mer cov­ers you for a fixed pe­riod of time only, such as for 15, 20 or 25 years, and you can choose from ei­ther a level term, a de­creas­ing term or an in­creas­ing term pol­icy. If you pass away dur­ing this pe­riod the in­sur­ance will pay out to your ben­e­fi­cia­ries, but if you die once the term has fin­ished they will not re­ceive a pay­out. Al­ter­na­tively a whole of life pol­icy – some­times known as ‘life as­sur­ance’ – will pay out a sum of money to your de­pen­dents no mat­ter when you die, but there is usu­ally a higher premium, or you could choose a spe­cific ‘over 50s’ pol­icy in­stead. ‘Whole of life poli­cies are un­der­writ­ten and of­fer higher pay out, whereas over 50s poli­cies are not un­der­writ­ten and of­fer smaller pay out sums,’ Tom adds. It is also pos­si­ble to opt for fam­ily in­come ben­e­fit in­sur­ance, which pays the money out to your ben­e­fi­cia­ries in reg­u­lar in­stal­ments rather than as a lump sum, and if you’re mar­ried you might choose a joint pol­icy, which is of­ten a cost ef­fec­tive op­tion.

When it comes to how much you should be ex­pect­ing to pay each month it can vary hugely, but gen­er­ally it will come down to just a few pence a day. ‘Ac­cord­ing to Con­fused. com data, the av­er­age cost of life in­sur­ance so far this year is £23.52,’ Tom says. ‘How­ever, life in­sur­ance cover can be bought for as lit­tle as £4 a month and can ex­tend far be­yond that de­pend­ing on how much you want to cover.’ Var­i­ous dif­fer­ent fac­tors will have an im­pact on your premium, such as your life­style and phys­i­cal health; your age will also play a sig­nif­i­cant role in de­cid­ing how much you pay, so it there­fore makes sense to take out a life in­sur­ance pol­icy when you’re younger. It is im­por­tant to be aware, though, that most life in­sur­ance poli­cies will not cover you if a se­ri­ous ill­ness pre­vents you from work­ing. ‘How­ever, there is of­ten the op­tion to pur­chase add on “crit­i­cal ill­ness cover”,’ suggests Tom. ‘This would cover the loss in earn­ings in the case of ill­ness.’

Choos­ing a life in­sur­ance pol­icy can seem like a daunt­ing prospect, but there is plenty of ad­vice out there: web­sites such as Which? and The Money Ad­vice Ser­vice pro­vide lots of in­for­ma­tion, and Con­fused. com have also cre­ated a range of guides to help peo­ple de­cide what is the most suit­able op­tion for them. A fi­nan­cial ad­vi­sor will be able to help too – but be­fore com­mit­ting to a pol­icy, be sure to do your re­search.

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