Taking out life insurance is really protecting other people, like your partner, spouse or children if you should die. The concept is simple - you take out an insurance policy and pay in while you are alive. When you die, the people you name on the policy receive the cash.
Having insurance means that you have taken on your responsibilities for your loved ones and in the event of your unexpected death, they have cash in the bank to settle the mortgage and pay the bills.
Types of life insurance
Insurance generally comes in three basic types:
· Term life
Cheap and cheerful, term life pays out if the policyholder dies while the policy is in force. The term is generally five to 30 years. If you don't die within the term of the policy, you lose all the money you have paid in.
· Whole life
Whole life guarantees a pay out because the term ends when the policyholder dies. As the insurer knows you will die eventually, the premiums are generally more expensive than term life.
· Mortgage insurance
Mortgage insurance is a type of term life. The policy lasts the life of your mortgage and the sum assured - the cash paid out by the insurer - reduces, as the amount owed on the mortgage decreases.
The theory is that if partners or spouses have mortgage life cover on a 'joint life, first death' basis, the policy pays out and clears the mortgage when the first person dies.
How much life cover do you need?
That depends on you and your personal circumstances. Certainly the cover should pay off the mortgage and provide a further lump sum to enable your family to maintain their lifestyle.
A good idea is to list all your debts - like the mortgage, car loans, credit cards, overdrafts and so on. The pay out should at least cover these.
Financial advisors often suggest insurance cover of at least 10 times the policyholder's annual salary.
Why do I need the cover?
Besides making sure your mortgage is paid off, insurance can also provide funds for putting children through university and investments.
Mixing protection and investment is not a good idea.
The lessons of the credit crunch show that savings can suffer greatly from fluctuations in the economy and if your financial planning to pay off essential debts is based on risky investments, your loved ones may not end up with the resources you have planned for them.
Separate your protection from your investments and make protection your priority.
Add ons
Life insurance can come with lots of added extras, like critical illness cover that pays out if you have certain serious medical conditions.
You should look carefully at the add ons and whether you actually need them, as each add on can increase the premium and might end up as a benefit you may never collect.
Comparison
Make sure you compare like with like with life insurance policies - one product may seem a good deal but may not offer the same cover and benefits as another that is only slightly more expensive.
Credit By David H Thomson
Having insurance means that you have taken on your responsibilities for your loved ones and in the event of your unexpected death, they have cash in the bank to settle the mortgage and pay the bills.
Types of life insurance
Insurance generally comes in three basic types:
· Term life
Cheap and cheerful, term life pays out if the policyholder dies while the policy is in force. The term is generally five to 30 years. If you don't die within the term of the policy, you lose all the money you have paid in.
· Whole life
Whole life guarantees a pay out because the term ends when the policyholder dies. As the insurer knows you will die eventually, the premiums are generally more expensive than term life.
· Mortgage insurance
Mortgage insurance is a type of term life. The policy lasts the life of your mortgage and the sum assured - the cash paid out by the insurer - reduces, as the amount owed on the mortgage decreases.
The theory is that if partners or spouses have mortgage life cover on a 'joint life, first death' basis, the policy pays out and clears the mortgage when the first person dies.
How much life cover do you need?
That depends on you and your personal circumstances. Certainly the cover should pay off the mortgage and provide a further lump sum to enable your family to maintain their lifestyle.
A good idea is to list all your debts - like the mortgage, car loans, credit cards, overdrafts and so on. The pay out should at least cover these.
Financial advisors often suggest insurance cover of at least 10 times the policyholder's annual salary.
Why do I need the cover?
Besides making sure your mortgage is paid off, insurance can also provide funds for putting children through university and investments.
Mixing protection and investment is not a good idea.
The lessons of the credit crunch show that savings can suffer greatly from fluctuations in the economy and if your financial planning to pay off essential debts is based on risky investments, your loved ones may not end up with the resources you have planned for them.
Separate your protection from your investments and make protection your priority.
Add ons
Life insurance can come with lots of added extras, like critical illness cover that pays out if you have certain serious medical conditions.
You should look carefully at the add ons and whether you actually need them, as each add on can increase the premium and might end up as a benefit you may never collect.
Comparison
Make sure you compare like with like with life insurance policies - one product may seem a good deal but may not offer the same cover and benefits as another that is only slightly more expensive.
Credit By David H Thomson
No comments:
Post a Comment