SimplyFinance - Life Insurance

How much should I insure my life for?

2009-05-10T23:00:00Z

'How much should I insure my life for' is a question that many of us will consider when looking at our future financial planning. Life insurance can be a sensitive subject, and it's important that if you are considering taking out a policy, you think carefully about why you are doing so and assess the financial priorities in the event of your death.

Everyone's circumstances are unique, and there isn't one policy that will meet every individual's needs. What to prioritise can be a difficult decision, you may simply be worried about the cost of your funeral for those you leave behind, or your concerns may stretch to financial stability for your partner and children years into the future. Therefore the importance of understanding the amount you should insure your life for cannot really be understated. An inadequate or unsuitable policy can actually even cause difficulty after your death, as opposed to helping those who are left behind.

How much life cover do I need?

The first step is to try and make a list of the financial hurdles that may face a loved one in the event that you die prematurely. Many people want to simply have sufficient life insurance that they can leave enough to cover the mortgage - often the biggest debt facing a household. In this case it could be worthwhile making sure any sum covers not just what's outstanding but possibly also any fee that might be incurred for settling the mortgage debt a little early (the ?early redemption penalty?).

The question 'How much should I insure my life for?' is an extremely difficult one, because you have to actually plan according to a long-term future that, of course, you cannot predict. If you've got children, you may want to consider whether they'll want to go to university, for example. Other considerations include paying off a car loan or other secured or unsecured debt.

The amount of life cover you want - that is, the amount of money the insurance company would pay out should you die - can be related to your age and the number and age of your dependants. The amount (or 'sum insured') may also be influenced by any benefits an employer might be providing, so you need to balance your employee life insurance and pension scheme (if you participate in one) against your personal life cover requirements. Remember as you grow older and your circumstances alter, your life insurance may need to change as well.

When you insure your life you'll often be asked to choose between various types of cover.

* Level term life assurance lets you decide how long the cover runs for and at what level the policy operates. Should you die during the policy term, the insurer would pay the amount you are covered for.

* For those who are most worried about an unpaid home loan after they are gone, Mortgage Protection life insurance is an option, which involves simply naming an amount you would like to be paid out, but this type of cover actually reduces in value each month in line with your shrinking mortgage as you pay it off. Then if you die during the policy's term, the insurance company simply pays the calculated amount of cover.

* Critical illness cover can be selected with a level or a decreasing term life assurance policy. Again you can name the amount, but a payout is also forthcoming if you're diagnosed with a critical illness during the policy term, as opposed to simply dying during the policy term. Typical types of illness covered include strokes, cancer, and heart attacks, although you should check with the insurer on the exact list before proceeding with the policy.

Use our Life Insurance needs calculator to help you choose your level of cover, or get a no-obligation quote from an experienced life insurance adviser by filling out our short life insurance form.

How Long Could You Cope without an Income?

2010-03-04T00:00:00Z

If you are currently employed, or your partner generates the household income, it's worth giving some thought to how you would manage if the money dried up. Most of the time, this happens very suddenly and unexpectedly, either through redundancy, illness or the death of the 'breadwinner' in the household. Whatever else you are going through at this time, you need to ensure that you have sufficient funds to cover the living costs of you and your family.

Ask yourself the following question; if my income stopped today, how long would I be able to manage financially? Consider not only groceries and other day-to-day expenses, but also rent or mortgage bills, school fees and credit card repayments. If the answer is 'I'd be lucky to manage an entire month', the alarm bells should be ringing.

Research carried out by life insurer Friends Provident shows that you certainly wouldn't be alone if you've failed to make provisions for the loss of the breadwinner in your family. As many as 24 million people in the UK have absolutely no insurance in place to protect themselves and their families against loss of earnings. Of those that do have some degree of protection, many were found to be underinsured by an average of 14,500GBP per year or around 1,200GBP each month.

Of the people surveyed, a third thought that they could live on less than 35% of their take home pay in the event of losing their income, which in practice would be nigh on impossible to manage. The problem in many cases where people do have insurance is that they took this out at an earlier stage in their life and have not updated the policy as their circumstances changed. In a relatively short period of time, marriage, children and mortgage commitments can completely change your priorities, and it's essential to make sure that your dependents and your lifestyle are protected.

Ed Stuart-Brown, head of protection sales commenting on the Protection Oversight research (carried out for Friends Provident) said: "The findings in the Protection Oversight research are very worrying. Imagine being told that you had just been given a 66% cut in your income - the impact of that for most people would be catastrophic. It's time people took control of their future and looked at this in a responsible way, instead of burying their heads in the sand, especially in today's environment. Ignorance is not bliss, it's irresponsible."

So what should you do to ensure that you're properly covered? Firstly, if you have any existing policies, dig them out and have a read through them to see what level of cover you currently have. Make an appointment with your financial adviser and talk through your options based on your current income, the number of dependents you have, and the scale of your monthly financial commitments.

If you do not have an adviser, you can request a callback from an experienced insurance adviser by filling out our short life insurance form. This adviser will be able to give you quotes and advice, all of which will come with no obligations to proceed.

Before you make the call, you can also visit our Life Insurance pages to read more about the types of cover that are available or use our Life Insurance Needs calculator to estimate the level of cover that you should have.

Types of Life Insurance

2008-05-23T23:00:00Z

Life insurance is a contract between the policy owner and the insurer, in which the insurer agrees to pay an amount of money in the event of the owner's death. The owner pays premiums, at agreed upon intervals, in exchange for this insurance.

The policy owner assigns a beneficiary to the policy, who is the person to receive the benefits upon the owner's death. There are different types of life insurance, including permanent, term, and variable policies. These are each designed with different needs in mind. You may be interested in estate planning, temporary protection, cash accumulation, or just the peace of mind of knowing that your loved ones will be taken care of in the event of your death.

Permanent life insurance is for the life of the insured. It accrues cash over the length of your life, as long as you continue paying the premiums. These premiums are higher than for term life insurance, because they must pay out, but these products accumulate a cash value against which the policyholder can borrow and which will be paid to the beneficiary upon the owner's death.

It is possible for this life insurance to be paid out early in the event of a critical illness, as long as the contract is not broken. Another advantage to permanent life insurance, rather than beginning with term insurance and switching over later in life to a permanent policy, is that you will not have to consider being rejected if you develop a serious illness before the change in policies, which could affect your acceptance.

Term life insurance gives you coverage for a set amount of time (usually in multiples of 5 years), but the value of the policy is only paid out if death occurs during the time specified. In addition, the policy's value does not increase. Because term life insurance policies are a pure death benefit, they are generally 8 to 10 times less expensive than a permanent life policy for the same coverage.

Variable Universal life insurance, usually between the price of permanent and term, combines a term life insurance policy with variable investment options. The policy owner decides in which accounts to invest, which is an attractive feature. There is more financial risk with this type of policy due to markets; however, there is the potential for greater returns at the end of the term. This type of policy also requires more attention to planning.

Because you want to take care of your family even after you are gone, life insurance is extremely important. You will be able to plan your life through retirement and then financially protect your family once you have passed.

Does your Home get better Protection than your Family?

2009-12-16T00:00:00Z

New figures by insurer Scottish Provident show that whilst 71% of Britons have home contents insurance, only 44% have life insurance and a mere 15% have taken out critical illness cover.

On one hand, it is encouraging to see that as many five in seven Britons protect their home contents from damage, theft or loss. This type of cover is especially important over the Holidays, since the presents inside a home in the build-up to Christmas can significantly increase the value of the home contents - and the risk of a burglary. On the other, the fact that so few have life protection means that many Britons could be leaving their families at risk.

Susan Barclay, Head of Marketing, Scottish Provident said: "It is great to see that people are taking out adequate insurance to cover the items in their homes, especially in the run up to Christmas when people are making lots of purchases. However, this should not be at the expense of personal cover.

Interestingly, the survey also showed that people imagine life cover to be far more expensive than it actually is. Life cover can be bought from around £10 per month, and critical illness cover - where you receive a lump sum of money or a set income should you develop a serious health condition - can be included on a life insurance policy for a relatively low additional cost.

"Despite the fact that almost a half of the respondents perceived personal insurance as too expensive, people need to be aware that life protection can be bought from as little as £10 per month, and extras such as critical illness cover can be added for around £17 extra a month."

If you would like to get a free, no-obligation quote from an experienced life insurance adviser, please fill out our short life insurance form.