life insurance guide

The first step is to establish how much cover you will need, and for what purpose. Will your family need full financial support after you die? Do you wish to arrange for your mortgage to be paid off, or your children's university education be paid for? Perhaps you wish to ensure your business partner can survive the upheaval caused by your death.


Reasons for arranging cover could include:

1. Mortgage repayments - level term policies, recommended for interest-only mortgages, offer fixed premiums over a fixed period of time and payment upon claim. Lower premiums are available with a decreasing term policy, where the amount of cover reduces over the term of the policy in line with the amount owing on a repayment mortgage.
2. Replacing the primary earner's salary - ensuring the family does not fall upon hard times in the event of the primary breadwinner's death - is often the main reason for arranging life assurance. The amount of the payout should be calculated according to the earner's net salary, the number of years it will be needed to maintain the family, as well as additional expenses incurred due to the breadwinner's death, such as childcare. The amount can be paid in a lump sum and invested in order to pay out the income needed, or paid in monthly instalments as a Family Income Benefit.
3. Replacing childcare - the death of the primary childcare provider may create expenses in the form of full-time childcare. The level of care needed and for what term depends on the age of the children.
4. Education expenses - cover can be arranged for school fees and/or university tuition and expenses for children in the event of the death of the primary earner.

In some cases, policyholders may be concerned about leaving debts behind; in others, they may simply wish their family to be able to keep up a certain standard of living after their death.

It is recommended that you use your current annual salary as a base guide from which to establish how much total cover you wish your policy to provide. A general rule is to choose a policy providing at least ten times your salary; in certain circumstances, up to 25 times salary may be appropriate. Again, the amount will vary depending on how you intend it to be used.

People unsure about the type of coverage they need, or the amount they should insure for, should consult an Independent Financial Advisor for expert advice.

Once you have determined which financial goals you wish to satisfy, the next step is to choose the type of cover you want.