Life insurance

How can you protect your dependents if you are no longer around?

Robert Drury


Life insurance

How can you protect your dependents if you are no longer around?

Life insurance is also known as ‘life assurance’, or ‘life cover’.

The life insurance advice you receive needs to consider all of your circumstances. Your individual need for protection will depend on whether you are single, in a relationship, with children or with a mortgage or debts.

It is not usually enough to trawl the internet and choose the latest site offering the ‘cheapest life cover’ quotes. Those providers will often not conduct a full review of your circumstances and will give you only what you ask for. Many of the cheapest insurance plans will also not make entirely clear that their premiums are reviewable and can rise later.

What do you need to consider?

Life insurance applicants need to consider the following questions:

  • Who needs to be protected financially if you die?
  • How much cover do you need? Do you already have cover, including ‘death in service’ protection through your employer?
  • How long do you need the new benefits to last and why? When might your children be financially independent? When does your mortgage end?
  • Who will actually receive the plan benefits if you die? Should they own the plan that you are insured under (they will need to have an ‘insurable interest’ in your life) which speeds up payment of benefits? If the benefits are to go to young children should they be placed in a flexible Trust arrangement until they are old enough to manage the money themselves? If so, who do you appoint as Trustees?
  • What if you don’t die but you are too poorly to work? Income protection may be needed rather than life cover.
  • Do you need flexible cover that can adapt as your life changes? Some plans offer the addition and removal of covers plus flexibility to change sums insured.
  • Does cover need to be inflation proofed by index linking? This will preserve the real value of the benefits, although this is not usually appropriate for mortgage cover.
  • Have you already been ill? Some illnesses will cause cover to be declined, or the premium increased (‘loaded’) to cover the additional risk of a claim.
  • What is your lifestyle? Do you have potentially dangerous hobbies? Or travel overseas a lot with your job? Does your work involve a lot of driving? Are you overweight?
  • What is your budget? It is no use being advised to take a package of cover if you simply cannot afford it.
How does life insurance work?

There are a number of very different plans available to meet protection requirements. These include plans that pay out a level benefit for a fixed number of years. Other plans pay a reducing sum over a given term and are ideal for capital and interest mortgages.

A particularity low cost policy to provide cover for families are ‘family income benefit plans‘. These pay a regular monthly amount to a surviving partner or children in the event of a parents death. The benefit is designed to replace the lost income to the household, and can provide support until the children leave home.

Also available are ‘whole of life’ plans which guarantee to pay out when you die. However, the cost of premiums will rise as you get older. If you reach a very old age, the premiums could become prohibitive. They are usually reviewed every 5-10 years and will reflect your age, and the claims experiences of the insurance company (but not your ongoing health).

Other features

Some plans will offer the option to add ‘Critical Illness Cover’. This means that the benefits will be paid out if the planholder is diagnosed with a serious illness covered by the plan. Such illnesses include heart attacks, cancer and strokes, but also a range of other serious conditions. Although you may survive, your lifestyle and ability to earn could be changed, so the plans provide financial support.

Some plans will allow indexation of benefits. This means the payouts will rise over time in the line with increases to the retail prices index. This ensures benefits keep pace with inflation.

A number of other options may also be available to you.

See here for details of the types of life assurance plans that can be arranged.

 

A meeting with Robert will allow him to gather your circumstances together and understand your needs. He can then give you the correct life insurance advice.

THE PLAN WILL HAVE NO CASH IN VALUE AT ANY TIME AND WILL CEASE AT THE END OF THE TERM. IF PREMIUMS ARE NOT MAINTAINED, THEN COVER WILL LAPSE.

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