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WHILE most of us will hope for a long life and to pass away peacefully in our beds, the unexpected can sadly happen at any time. And if the worst should happen to the family's main breadwinner - whose income pays the mortgage and the bills - then what of those left behind?
They not only have to cope with the grief of their loss, but with the potential hardship of suddenly having to do without someone's financial contribution to a household. It's not a thought we like to dwell on, but death is a certainty for all. But there's a simple way to help those left behind to cope with the financial impact.
Life insurance is all about giving you and your family peace of mind. It could help your family pay off the mortgage, for instance. Or it could provide them with a monthly income to help them maintain a decent standard of living.
It's an area where you have a choice. There are enough different kinds of life cover to meet almost any financial eventuality. It's not just about death. You can also buy cover to ensure a payout if you are struck down by an illness which means you can't work or need cash to pay for extra medical care or modifications to your home. In simple terms, then, life insurance gives you and your family financial protection against unforeseen illnesses or accidents and death.
Insurance is a gamble and the best scenario is that you never need to claim. Indeed some criticism of life cover is that it is money lost as with many policies, you get nothing back at the end of the policy. But I couldn't think of a more delightful scenario. I have two young children and want to give them the best start in life. But that means having plans in place to protect my children if I die. I'm comforted by the thought that they will have adequate cash to see them through, even if I'm not there to see it. I'll be even happier, of course, if nothing happens to me.
That's the gamble with life cover. You're gambling against a terrible eventuality.
Some feel that life insurance is expensive. It can be if you want financial protection against every eventuality. But cover which pays out a lump sum if you die within a certain period is relatively cheap. It's known as term assurance because it covers your life for a certain term or period, say 10 years. If you die within the period, the policy pays out. If you don't die, you get nothing.
The cost of term cover will depend on how much you want the potential pay-out to be and how long you want the cover to last. The cost also depends on your age. The older you get, the more likelihood there is you will get an illness. Therefore the cost of cover rises.
Term insurance is ideal for repaying the mortgage. You can arrange the term to last as long as your mortgage and it will mean your family's home will be secure whatever happens to you. You can even get specific policies which reduce the pay-out over time in line with the reduced amount you owe on your mortgage. The advantage of what are known as 'decreasing term policies' is that they will cost you less.
For a little more you can get insurance that pays out whenever your death occurs. It's known as 'whole of life cover', because it covers you for the whole of your life. It's more expensive as there is a certainty that you will die and that the insurer will have to pay out on the policy.
The above policies pay out a lump sum which can be used to pay off the mortgage or meet whatever financial commitments your family has. Another approach is to set up a policy which pays out a monthly income if something happens to you. Known as 'family income plans', to get the best from them you need to calculate how much your family would need each month and for how long. Typically it could be two-thirds of your income.
Another eventuality to consider is that of you contracting a serious illness such as heart disease or cancer. You may have to give up work, but need costly extra medical care. Critical illness cover can help by providing a tax-free lump sum when you stop work. The cost of cover will again depend on your age but also on what diseases are insured against. More expensive policies will insure against a wide range of illnesses. Life insurance is not a fun subject. Facing up to your own mortality never is. But if you have family or dependants, you owe it to them to provide as much protection as you can. If you're not sure how much cover you need, an independent financial adviser will be able to talk you through your options. And of course you can buy cover directly without advice through one of the many companies on the Moneynet site. My advice would be get as much as you can afford.
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