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Life Assurance is needed for only one reason - to
provide money for people who depend on you. If there is no one
who will be financially distressed by your death, life assurance
is not needed.
It is normal for the need for assurance to decrease
as your family grows up and leaves home. Also, if you create a
number of areas of savings, this will obviate the need for life
assurance over a period of time.
Remember that both you and your spouse or partner
will probably need some life assurance but the amounts would vary,
since your income and expenditure will almost certainly be different
following one or the other's death.
It is almost always best to have individual life
policies for each person rather than joint life policies that pay
out only on the death of the first party. In these days of fragile
marriages, joint life policies are regularly cancelled leaving
both parties needing to re-insure themselves at an older age and
usually at a higher premium.
You should also review your life assurance needs
every few years as your income and other circumstances alter.
Life assurance can be simply insurance that pays
out on death only or there can be an investment element when it
is called an endowment. The following are all situations that may
require Life Assurance.
To ensure that a spouse and children are not burdened with mortgage
repayments, life policies ensure that the outstanding mortgage
is cleared on death.
If you have small children then money will help provide for them,
perhaps by allowing the surviving partner to stay at home or
work part time for some years.
Banks and creditors get worried when key people die. Credit lines
get shortened or even pulled, often with fatal consequences for
businesses. Your business should insure you to provide cash to
settle all debts and recruit a new person.
If you die you hope that your colleagues will pay a fair value
for your share of the business, but they can only do this if
the funds are available. Insurance is used to provide this.
The good news is that many people already have some
life assurance, and that in many cases this will suffice for their
needs.
If you are a member of a good company pension scheme
read your benefits booklet. You may well find that if you die your
spouse and children will get a lump sum and / or a pension. We
can calculate the benefits and make sure that they will be sufficient.
If you are not in a good company pension scheme
and are self employed, or in business, and have dependants, then
it is essential that you have your position assessed. We can help
you do this.
The most basic form of life assurance is Level Term Assurance where
you pay a regular monthly amount (Level) for a set period number
of years (Term) and, if you die during that period, the policy
will pay out a set amount. The advantage of this type of insurance
is that it is basic and cheap. The problem with LTA is that it
only covers death and, then, only during a defined period. If your
health deteriorates significantly during this period, then you
will get no benefit and any additional cover might prove very expensive.
There are a wide range of more Convertible and Reviewable
Term Assurance policies where you can elect to increase the amount
of your cover, increase the length of your policy term or, in other
ways, vary or review the terms of the policy without taking another
medical. This provides you with the comfort of knowing you will
always be able to get cover. However, as you would expect to reduce
your level of cover as time goes on, having the ability to increase
cover is not that useful and all those additional benefits add
to the cost of the policy.
There are also Decreasing Term Assurance policies
where the amount of your cover reduces each year. These are generally
used as Mortgage Protection policies for repayment-type mortgages
but if you are confident that the amount you will need to provide
for your dependants is going to decrease over the years then it
makes sense to consider this less expensive option.
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