No one expects love ones to struggle financially as a result of his or her death. Unfortunately, this is happening more often within the UK as deceased individuals leave mortgages, debts, and other financial obligations for survivors to handle. Being saddled with debt can make anyone look less favourably upon the deceased.
People who would rather be remembered fondly get their finances in order and purchase life insurance before it is needed.
Who Needs Life Insurance?
Anyone who has a dependent should consider buying life insurance. A dependent may be a spouse, child, elderly parent, or other relative who depends on your financial support. Even people with no dependents should think about purchasing life cover if they have substantial debts or joint mortgages or loans with friends or business partners. Otherwise, the individuals handling their estates may be forced to repay these obligations, something that may not be in their budgets.
A change in life situation can also make life insurance an important consideration. Examples include getting married, becoming a parent, buying a home, moving, or taking out a large loan. If one household member becomes the main income provider due to another losing a job, the new breadwinner should consider buying life insurance. Cover is available at reasonable prices, making it affordable if purchased at the right time.
The Best Time to Buy Life Cover
A fixed-rate life insurance policy is usually less expensive when the applicant is young and healthy. This is because the risk of the individual dying is relatively low. Unfortunately, this is also the time when most people do not consider buying life cover. No one is invincible and death can strike at any time so having a policy in place now can prevent financial problems for beneficiaries later.
Life Insurance Payouts
Most life insurance policies pay lump sums when claims are filed upon the death of the policyholders. There are also some that pay incrementally over a pre-determined period. A mortgage is the largest debt that most people have, leading many people to purchase enough life cover to repay their mortgage balances.
However, life payouts may also be used to replace income, provide childcare, or cover higher education costs. They can even be used to cover regular living expenses such as monthly bills, groceries, clothing, and housecleaning expenses.
Which Type of Life Cover is Best?
Term and whole of life are the two main types of life insurance. Term insurance covers a fixed period so it is usually less expensive than whole of life is, which lasts for a lifetime. When people purchase term insurance, they buy a policy that extends long enough to cover the mortgage term or cover dependents until they can become financially independent. If the insured dies after the insurance policy term ends, no payout is made.
Term insurance is divided into level and decreasing term. Level term pays the same amount at any time during the lifetime of the policy and decreasing term pays a lump sum that decreases by a preset amount each year. Level term cover is often used to repay an interest-only mortgage and decreasing term cover is typically purchased by someone with a repayment mortgage, whose balance declines each year.
A level or decreasing term life policy is a smart purchase for someone with a joint mortgage. If the policyholder dies, the surviving mortgage holder can use the payout to cover all or a portion of the mortgage payments. This prevents the survivor from having to cover the entire mortgage payment him or herself.
Some employers offer life insurance as an employee benefit and this cover may include a death in service provision. This usually equates to a payout of approximately four times the salary of the policyholder should the individual die while employed by the business.
This may or may not be enough money to support the current standard of living of beneficiaries. If additional life cover is needed, consumers should shop around to find the most reasonable premium for a sufficient amount of additional cover.
