Life Insurance – Who Needs It?
Insurance is one of those things that you pay for and never actually use unless something goes array and this is definitely the case with life insurance. If the worst happens and you or a loved one die, will you have sufficient savings to cover your mortgage and other expenses? If not, then you really should look at getting life insurance.
Many of us put off looking at life insurance policies; it can seem complex and take a lot of time and what about all of those medical questions? However, if you do not have sufficient cover in place, you may be in a risky position as no-one wants to be dealing with the loss of a loved one and lack of money.
The good thing is that many of the new types of policies for the over 50s don’t make you sift through reams of paper, asking detailed questions about your health. Premiums have also become more affordable and if there is no need to undergo medical examinations then putting a policy in place becomes a whole lot simpler.
Why life insurance?
The idea is that life insurance protects the family by paying out a lump sum should the main breadwinner die, clearing debts and leaving some money left over for living costs etc. There are several types:
- Whole of life – this pays out at any time when you die. Whole of life policies usually cost more because the insurance company know they will eventually have to pay out, as long as the policy is valid i.e. no medical conditions have been hidden or not declared.
- Term – this covers just a set period and only pays out if you die within that timeframe. For this reason, term insurance is cheaper and you can decide on the term i.e. length of years that you want to be covered. The only down side is that if you live beyond the set date, you get nothing in return for the money you have paid into the policy.
- Mortgage protection (decreasing term insurance) – your policy will be set to match the term of your repayment mortgage, decreasing slightly each year as you pay off the amount you owe. If you die within that time, your mortgage will be paid off. This normally only covers your mortgage balance.
- Family income benefit insurance – this is similar to level term or decreasing life insurance but pays out a regular income instead of a lump sum. Again, this will not pay out if you die later on in the term of the policy or outside of the term.
- Single or joint life – you also need to choose between single life policies that cover just one person and joint life where two people are covered; this can be a couple or husband and wife. When one of them dies, the money is paid out – you can choose whether this will be on the first or second death.
How to choose your policy
In order to decide what type of protection to go for, you need to look at your current financial position; do you have any investments or savings? Will you pension fund at work cover you for death in service? You need to calculate the sum of money you would need to clear all debts (mortgage included) and leave a sum of money for dependents. The younger and fitter you are when you take out insurance, the less you will pay. Always shop around for the best deals using online comparison sites or the services of a professional financial advisor. Not all companies assess premiums in the same way. You should also check on their record of paying out when a claim is made as you don’t want to pay out a lot of money in premiums only to find that problems occur when the policy needs to pay out.
When it comes to medical questions, you must disclose everything. If you fail to mention something and then your medical records later show that you had a pre-existing condition, the insurers may use this as a way of not paying out.
When deciding which type of policy to opt for, you need to consider several things:
- Affordability – look at what you can afford to pay in monthly premiums. Some policies are more expensive than others and they also go up in price as you age and particularly if you have health problems. A joint policy will cost less than two singles.
- Benefits – look at any existing benefits you may have like death in service work pensions. You may only need to cover one life or even none.
- Health – if one of you has poor health then you may decide to only cover the one that is the fittest, given that this will result in lower premiums.
- Type of cover – do you both need the same cover or would two individual polices serve you better?
But is life insurance really essential?
When money is tight and all sorts of bills are making demands upon your income, it can seem indulgent to pay out for something like life insurance. However, if the worst does happen and you have a family, you don’t want to combine going through the difficult grieving process with worrying about how bills will be paid or whether your partner or family would be able to afford to carry on living in the family home.
Overall, life insurance is something that most of us cannot avoid and just like making a Will or other essential documentation, it is a subject that needs to be discussed and looked at. Because it can become quite a complex topic and due to the varying different types of policy, you may be well advised to take advice from a professional financial advisor who can carry out a full fact find and identify the most suitable life insurance policy to suit you.