Buying something you actually never want to use and will never see the benefit from when you do may seem to make very little sense.
But millions of people up and down the country do exactly that when they take out life cover.
At Continuum we are looking at why it makes sense for them – and why it might make sense for you to do the same.
What exactly is life cover?
Life cover is simply an insurance policy that pays out if you die.
It’s true that you will never see a penny of what it pays out. But those you leave behind, will. If you have loved ones who depend on you when you are alive, it lets you continue to provide for them even if you were no longer there.
Life cover could help your family pay off the mortgage and keep their home. It could help replace your income. It could ensure that the misery of losing you was not made even worse by the misery of financial hardship.
To put it another way, life cover is part of caring for those you love.
How does life cover work?
If you take out a life insurance policy, you’ll pay a monthly premium that will cover a payout in the event of your death.
There are two main types.
Life Insurance – or term policies. Insurance or ‘term life’, is arranged for a fixed term. Many people arrange term life cover to end when they start drawing a pension, or when their mortgage is paid off.
You can choose level term cover, where the payout stays the same throughout your policy. You might prefer decreasing term where the payout falls over time. It’s usually used to safeguard a mortgage and can fall at the same rate as your mortgage debt. You can also choose increasing term insurance with a payout that grows over time to compensate for inflation.
Life insurance is a way of providing financial security for young and growing families against the unexpected
Life Assurance or whole of life policies. Life Assurance policies cover you until you die, as long as you keep up with your payments. They help you ensure financial security for those you leave behind and can help you make provision for inheritance tax payments.
Life assurance can be a key financial provision for older people against the inevitable.
How much cover do you need?
If you want to safeguard your family home, look at what you owe on your mortgage, and arrange a sum to pay it off. To replace an income, work out what you spend each month, multiply it by 12 to get an annual figure, and multiply it again by the number of years cover you want. That will depend on your other financial arrangements, such as pensions.
A rule of thumb for a payout is at least 10 times the salary of the highest earner in your household.
What does it all cost?
Term life insurance is typically cheaper. This is because a term policy only insures you for a fixed period – for example, 10 or 20 years. Whole of life cover – assurance – will cost more, because a payout will be made sooner or later.
Whatever you choose, the cost of your life cover will depend on your age, health and how much you want the payout to be. Generally, policies become more expensive as you age.
Term cover can cost from a few pounds a month. If you pass away within a few years of taking out life cover, then the policy will likely pay out more than you paid in the first place.
You might want different policies to cover specific things like your mortgage, and another for more general cover. But you will end up paying more in premiums, and one policy tailored to your needs might provide the cover you need for less monthly cost.
So, do you need life cover?
If you are young and single, you might not need life insurance.
Things change when you get a partner and a family comes along. Dependents make life cover essential for your own peace of mind as well as their protection.
But the younger you are when you arrange your life cover, the less it can cost. Arranging cover when you are still young could mean paying much less for the rest of your life.
Getting the type and level of cover you need is easier with independent advice. What’s more, it is a competitive market, and shopping around could save you money. Call us at Continuum. We can discuss the appropriate level of cover you need and find the most suitable provider.
None of us know what’s around the corner. Call us today.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a particular protection product and you should seek independent financial advice before embarking on any course of action.
