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Life Insurance: Do I need it?

Life Insurance: Do I need it?
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Nobody likes to think about dying, but if you want to make sure that your family’s future is secure then you need to consider taking out a life insurance policy. Around one in three of us don’t have any life insurance.

Different levels of life insurance cover

The different types and levels of cover can be confusing, so it’s important that you understand exactly what you’re buying. This guide provides essential information on the various policies.

Why Do I Need Life Insurance?

Life insurance can be used by your family in the event of your death for a number of reasons, including paying off a mortgage, funeral expenses and to provide an income for dependents or a partner.

How much cover do I need?

Before taking out a policy you need to consider exactly how much cover you need and what it’ll be used for. For example, do you want a lump sum payout or a regular income; do you want a whole life policy or a fixed term? In order to get the best deal, you should shop around and compare different policies to find the right one for your requirements.

Term Life Insurance

This type of policy provides cover for a specific period of time, such as 15 or 20 years. If you die within the term your family will receive a fixed lump sum. However, if you die after this they’ll receive nothing.

Within term life insurance, there are different types of policy. With a level term policy you’ll have fixed payments and a lump sum payout. If you want to provide your family with a regular income, then you should consider a family income benefit policy.

Decreasing term life insurance

A decreasing term policy is a cheaper option, but the amount of cover will decline over the term. This is often taken out to cover mortgage or other debt repayments. The amount paid out will reduce in line with the amount outstanding on the debt.

The disadvantage of a decreasing term or level term policy is that the payouts don’t take inflation into account. Therefore the actual amount you’ll receive will be worth less over time. The payout with an increasing term policy will actually rise every year by a fixed amount. This means that you can factor in the rising cost of living and leave your family better off when you die.

Should I get a pension?

Whole Life Insurance

With term polices you’ll receive no payout if you don’t die within the time period. A whole life policy is usually more expensive, but there is no time limit so your family will receive the money whenever you die. As long as you keep up to date with the payments, the policy will pay out a lump sum.

Investment Life Insurance

This is a riskier option, but you could increase the amount your family receives. A percentage of your premiums are invested, so the amount of cover will vary depending on how the financial markets have fared.  If you’re considering this type of policy it’s important that you understand it and take independent financial advice.

Before You Take Out a Policy

When you’ve decided on a policy you should check exactly what’s covered and any exclusions. Different policies can vary considerably, so it’s essential that you know what your policy includes. Elements that you need to consider include:

–        Any exclusions for specific sports, lifestyle choices or medical conditions

–        Does the policy have an age limit?

–        Some policies will payout a lump sum if you’re diagnosed with a terminal illness

–        Can you miss any payments or cancel your policy?

–        Is there a cash-in value and do you want one?

–        Are there any additional benefits?

You then need to decide on exactly how much cover you require and for how long. This will depend on your lifestyle and the requirements of your family. For instance, do you have a large mortgage, how many children do you have, does your partner work? Most advisers recommend a policy that’s equivalent to ten times your income. However it’s worth bearing in mind that the higher the payout, the higher your premiums will be. You should review the policy at regular intervals and especially if your circumstances change.

Life Insurance Medical

Be honest and disclose everything

Most importantly, when you’re taking out a policy you need to disclose all your medical and lifestyle issues, including whether or not you smoke. If there are any discrepancies when your family come to claim, it could make the policy invalid. Most insurance companies will use a nurse to screen the policy holder before the policy is issued, the nurse will check your weight, blood pressure and carry out a test to find out if you are a smoker. This doesn’t happen in every case but beware that it is a possibility.

 

Get advice

Before you take out any financial product it’s important to seek independent advice. This way you’ll know exactly what your policy covers and that it’s the right one for you.

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About Catherine Stern

About Catherine Stern

Catherine Stern is a freelance writer with a background in marketing and PR. She currently writes web content on a range of subjects, from finance and business to travel and home improvements. As a working single mum of two young boys she understands the pressures that today’s working parents face and the topics they want to read about.

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