>> Life Insurance - The Facts

Life Insurance - The Facts

Protecting your dependents is one of the most important things you can do. People very easily underestimate their own value to their family. Would your family be able to cope financially if you were to pass away leaving them with a mortgage and all manner of bills to pay? Would their lifestyle suffer? Losing a loved one is already going to be a horrible time, losing them and having to cope on one or even no income only serves to make this time more difficult.

There are three key types of life insurance / assurance to know about :

Level Term Assurance - pays out a set amount of money at any point during the policy term. It can be used for family protection or interest only mortgages.
Mortgage Protection - pays out just enough to cover a standard repayment mortgage. The amount of life cover on the policy reduces throughout the policy term just as the money you owe to the lender reduces throughout the mortgage term if you have a repayment mortgage.
Family Income Benefit - pays out a regular, tax-free income until the end of the policy term. This is a vastly underused type of life cover, primarily because it is not as easy to understand as a straightforward lump sum.

Family Income Benefit can provide excellent value for money for those with a young family as it offers more cover in the early years when you most need it. For example, a policy to pay £1,000 per month over 25 years would hold an initial amount payable of £300,000 (£1,000 x 12 x 25). As the insurer knows their liability is reducing over the years they charge a lower premium making that initial life cover in the early years excellent value for money. If a claim were made in year 10 of the policy then it would pay £1,000 per month for the remaining 15 years of the contract. In this way the insurer’s liability reduces over the term.

When you take out life cover specifically for family protection then be sure to place the policy in trust. This will ensure the money passes to your beneficiary without falling into your estate and becoming liable to inheritance tax, and you can name exactly to whom you wish the money to go - a mini Will if you like.

The monthly premiums you pay for life cover will depend on various factors such as your age, gender, health, hobbies, and habits e.g. smoking. However premiums have been steadily falling in the recent past as life expectancy in the UK increases, so you might be surprised how cheap it can be!

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