Undervaluing your life is a common mistake…
Life insurance is a vital purchase if you want to ensure that your family are looked after should the worst happen.
What is the point of life insurance?
Well, in blunt terms, its purpose is to pay your family or other dependants a lump sum or regular payments should you die, ensuring that they are looked after should the worst happen.
The level of cover is another matter – which we will look at later – you may want to cover funeral costs, a mortgage or other amounts.
The level of money paid out depends on the sort of cover you buy. You decide how it is paid out and whether it will cover specific payments, such as mortgage or rent.
The two main types of policy are:
- Term life insurance policies: run for a certain amount of time (the ‘term’ of the policy) – it could be 10 or 25 years. These pay out a sum should you die within the term of the policy
- A whole-of-life policy: will pay out on your death, whenever that may be, as long as the payments are kept up.
On the whole, policies cover you for death, not illness, although most policies will pay out if you are diagnosed with a terminal illness and only have a year or 18 months to live. Additionally there is critical illness cover that can be added to most policies and will make a payment if you are diagnosed with a specified condition.
Now you know what it is, do you need it?
Anyone who has dependants, such as school age children, should insure themselves. This can help pay a mortgage, help to cover extra childcare costs or ensure that your partner doesn’t have financial worries to add to their grief.
You may not have children but still have a partner who relies on your income to pay the bills, or indeed other family members who rely on you to pay bills or housing costs. If you are single, with no dependents, you may not need insurance, although having a policy to at least cover funeral costs is very sensible. You could also benefit from having critical illness cover.
How much do you need to insure your life for?
You don’t want to pay more than you need to in terms of monthly payments, but likewise we would all hate to think that our loved ones would be struggling if we weren’t there to cover the bills.
A rough rule of thumb is to cover 10 x income, but this may not work for everyone. You also need to take into account any debts that would need to be paid off – including a mortgage – general bills and costs of living as well as funeral costs. Plus, anything that may be needed in the future – for instance paying for children to go to university.
It’s important when taking out life insurance that you give the insurance company all the facts – such as health issues and pastimes, and that you ensure all of the facts are up to date when you renew. For instance, you may need to reconsider your cover should you have more children, or take on a larger mortgage. This may involve cancelling your insurance and reinsuring with a different provider, or simply upgrading the cover you already have with your current provider.
The easiest way to get the cover you need is to talk to an independent financial adviser, who can help you work out what is the most affordable option, which will enable you to leave the best provision for your family when you are gone.
If you would like to book a review of your life insurance cover, or discuss anything other financial matters, we will be happy to help. Please contact us without obligation.
Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across the South of England including Oxfordshire, Buckinghamshire and Hampshire. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email firstname.lastname@example.org.
YOUR MORTGAGE IS SECURED ON YOUR HOME. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.