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Life Insurance

August 2019

by Mark Galligan

Providing a financial safety net for your loved ones

We would rather not think of the time when we’re no longer around. But it’s important to protect the things that really matter – like our loved ones, home and lifestyle – in case the unexpected happens. Life insurance (sometimes called ‘life cover’) is all about making sure your dependants have the money they need if you were no longer around. Its most important function is to replace the earnings that would cease at the death of the insured.

Losing your current and future income

If you die during your earning years, your family could suffer a severe economic loss as a result of losing your current and future income. Unfortunately, your family would still have to pay its regular bills, the mortgage and outstanding debts, and perhaps even continue saving for university and retirement.Unless you’re independently wealthy, achieving these goals may be virtually impossible for your family with the loss of your steady income. Life insurance offers a way for your family to continue living comfortably and without worry.

Helps you to financially protect your family

We insure our cars, homes and even our mobile phones – so it goes without saying that we should also be insured for our full replacement value to ensure that our loved ones are financially catered for in the event of our premature death. Life insurance helps you to financially protect your family. It could pay out a cash sum if you die while covered by the policy. You choose the amount of life cover you need and how long you need it for, and you can pay your premiums monthly or annually.

Coping financially during an otherwise difficult time

Life insurance provides a safety net for your family and loved ones if you die, helping them cope financially during an otherwise difficult time. Ultimately, it offers reassurance that your family would be protected financially should the worst happen. We never know what life has in store for us, so it’s important to get the right life insurance policy. A good place to start is asking yourself three questions: what do I need to protect? How much cover do I need? How long will I need cover for? This sum must take into account their living costs, as well as any outstanding liabilities, such as a mortgage.

Obtaining the right advice and knowing which option to choose

It may be the case that not everyone needs life insurance. But if your spouse and children, partner, or other relatives depend on your income to cover the mortgage or other living expenses, then it will be something you should consider.

Life insurance makes sure they’re taken care of financially if you die. So whether you’re looking to provide a financial safety net for your loved ones, moving house or a first-time buyer looking to arrange your mortgage life insurance – or simply wanting to add some cover to what you’ve already got – you’ll want to make sure you choose the right type of cover. That’s why obtaining the right advice and knowing which option to choose – including the most suitable sum assured, premium, terms and payment provisions – is essential.

Reaching different stages in your life that require protection

The appropriate level of life insurance will enable your dependants to cope financially in the event of your premature death. When you take out life insurance, you set the amount you want the policy to pay out should you die – this is called the ‘sum assured’. Even if you consider that currently you have sufficient life assurance, you’ll probably need more later on if your circumstances change. If you don’t update your policy as key events happen throughout your life, you may risk being seriously under-insured.

As you reach different stages in your life, the need for protection will inevitably change. How much life insurance you need really depends on your circumstances – for example, whether you’ve got a mortgage, you’re single or have children. Before you compare life insurance, it’s worth bearing in mind that the amount of cover you need will very much depend on your own personal circumstances, such as the needs of your family and dependants.

What you need to ask yourself:

  1. Who are your financial dependants – your husband or wife, registered civil partner, children, brother, sister, or parents?
  2. What kind of financial support does your family have now?
  3. What kind of financial support will your family need in the future?
  4. What kind of costs will need to be covered, such as household bills, living expenses, mortgage payments, education costs, debts or loans, or funeral costs.

 


 

There is no one-size-fits-all solution, and the amount of cover – as well as how long it lasts for – will vary from person to person.These are some events when you should consider reviewing your life insurance requirements:

•Buying your first home with a partner
•Covering loans
•Getting married or entering into a registered
•Civil partnership
•Starting a family
•Becoming a stay-at-home parent
•Having more children
•Moving to a bigger property
•Salary increases
•Changing your job
•Reaching retirement
•Relying on someone else to support you
•Personal guarantee for business loans

To prevent your family from being financially disadvantaged by your premature death, and to provide enough financial support to maintain their current lifestyle, there are a few more variables you should consider:

• What are your family expenses, and how would they change if you died?
• How much would the family expenditure increase on requirements such as childcare if you were to die?
• How much would your family income drop if you were to die?
• How much cover do you receive from your employer or company pension scheme, and for how long?
• What existing policies do you have already, and how far do they go to meeting your needs?
• How long would your existing savings last? n What state benefits are there that could provide extra support to meet your family’s needs?
• How would the return of inflation to the economy affect the amount of your cover over time?

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