Let’s talk life insurance

Why do I need to take out life insurance?

There are basically two reasons for taking out life insurance – because you have to and because you want to. For example, you need life insurance as a condition of getting a mortgage or you want to make sure those you love can manage better financially in the event of your death.

So how much are you worth? Whilst you are unique and irreplaceable there is a fair chance that a lot of what you do every day is far from unique.  This is just as well because there is also a fair chance that somebody else will need to do it if you die leaving family or other dependants behind.  It’s possible that at least some of these people will need to be paid for their services.  Therefore even if you are purely a home-maker rather than a breadwinner, your life does have a financial value and if you also bring in an income then it is advisable to look at the impact of losing this.

If I have savings and a will in place do I still need life insurance?

Well done for making a will.  It would, however, still be a good idea to look at life insurance.  First of all, it will give you an opportunity to check whether your savings would be enough to protect your family in the event of your death.  Secondly life insurance payouts can be excluded from probate.  In very simple terms this means that your intended beneficiaries can receive the insurance funds in a relatively short time-scale – possibly long before the process of probate is completed.  This can go a long way towards easing the financial impact of your death.

My financial plan doesn’t leave enough for insurance premiums…

There are two ways to look at this – either review your financial plan thoroughly to see if there are any changes you can make so that you can afford the premiums or see what you can do to get lower insurance premiums. 

In very simple terms, premiums are priced based on the statistical likelihood of you dying within the term of the policy.  While there’s nothing you can do about your age, you can control your lifestyle.  For example, if you’re a smoker, giving up will both free up cash and make you more attractive to life insurance companies. 

It’s also worth looking at what different types of cover are available.  This may help you to get the cover you actually need at a price you can afford.  For example, if your main goal is to pay off a mortgage, then it may be more affordable to take out a policy which decreases in value over its term, rather than one which provides the same level of cover from beginning to end.

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