Life Assurance – do you have enough?
We all want to look after the ones we love. So how do you provide that financial safety net, designed to catch your nearest and dearest in tough times ?
If you’re the main breadwinner, you have a responsibility to ensure that your family is protected should you die or find yourself unable to work. Your financial adviser will look at your earnings, savings and liabilities such as outstanding debts or future costs that will need to be met. While your mortgage repayments may already be covered, do you want or need to do more? Would you rather a lump sum was paid out, or should your policy deliver regular income?
Level term assurance pays out a lump sum if you die within the term of the policy and is one of the more basic types of cover. It will suit the simpler needs of most mortgage borrowers with dependants. Decreasing term insurance policies tend to be geared to a mortgage, designed to pay out less over time as the amount of capital outstanding reduces.
If regular income is more important, you might want to look into family income benefit (sometimes called family income protection). At the lower-cost end of the spectrum, these policies pay out a regular amount over a decreasing term, mainly because the financial impact tends to be greater more immediately, with pressure easing as children grow up and time passes. This type of cover suits those reliant on the main breadwinner’s salary and who would prefer a regular income.
Whole-of-life policies are becoming increasingly popular with those concerned about inheritance tax (IHT) but are usually more expensive because they tend to provide cover for longer and will, by design, result in a valid death claim in most instances. If IHT is on your agenda, you may prefer ‘second death’ life cover, rather than single life or a ‘joint life, first death’ plan, which ceases when the first of the two people insured dies.
If it’s not death, but illness that keeps you awake at night, then look into critical illness insurance (Cll). However, as a particularly exclusion-filled area of the market, it is vital you fully understand the cover you buy. CII pays out a one-off lump sum if you are diagnosed with one of the specific medical conditions or injuries listed on the policy. Severity-based cover is becoming more common, with commensurate staged premiums for heart attacks, strokes, certain cancers and multiple sclerosis generally covered.
A lower-cost option, with potentially more scope if you can’t work for a period, is income protection insurance. This provides a regular payment for the length of time you are unable to work and you can put in multiple claims throughout the policy term.