Life insurance: Don't bury your head in the sand


It might seem morbid to think about life insurance, but ignoring it could leave your loved ones at risk. If you’ve put off evaluating your life insurance needs, maybe it’s time to move it to the top of your must-do list.

A grim reality

Even in a two-income family, the loss of either parent would have extremely serious implications. Parents depend on each other in all sorts of ways that go beyond earning an income and paying the bills. In many cases, the surviving parent would have to leave their full-time job in order to care for the kids. Or if they choose to continue to work, the extra childcare needed would become very expensive.

Now, while this seems all very morbid, unfortunately, it’s a grim reality. A parent’s responsibility continues even after death. But there are steps you can take to ensure you family is financially secure.

 

 How much cover is enough?

But how much cover is enough? And how much does it cost?

The amount of life insurance you need depends mainly on your circumstances and what you want to achieve.

The general rule is that it should be enough to pay off any debts when you die and provide money so your partner and any children will be financially secure.

It may be worth considering a mix of cover - some to give you a lump sum and some family income benefit, which will pay a monthly income for the remaining term of the policy.

To cover your mortgage and other debts you need a lump sum payout. Since the mortgage is usually the main part of your debts, this part of the cover is probably only required until the end of the mortgage term.

For this purpose, the cheapest and easiest answer is either a level-term insurance – where the payout remains constant throughout the period of the cover, which is ideal for an interest-only mortgage – or decreasing-term insurance where the payout will decrease in line with the amount left owing on a repayment mortgage.

If you do not have any children, it may be that paying off debts is all the cover you need and your partner would be able to go out to work and support themselves.

 

The benefit is that you will get double the amount of cover you would receive from a joint policy and if anything happened to both lives, both policies would pay out, providing double the payout for a similar premium.

With joint life policies, if something happened to one life, the policy ends, leaving the surviving life uninsured. This often happens at an age where the other person is older and may not be in as good health, making the cost of replacing that cover either expensive or impossible.

 

You might feel that you are having to give far too much information, but if you hold something back it could really affect whether the insurer pay out in the event of a claim.