Why Life Insurance Should Be Called ‘Love Insurance’?
Did you know that 1 in 29 children lose their parents before they grow up? Apart from the tragedy of such a loss, how to cope financially is one of the most difficult burdens for families facing the death of a loved one. Grief can be compounded by worries about money and making ends meet. Taking out a life insurance policy could quickly and simply change all that for your family. It can save them from the burden of financial worries and constraints at one of their darkest hours.
The death of a breadwinning parent and, let's face it, that is most parents these days, can have a catastrophic effect on the family finances. As well as the grief and bewilderment of bereavement, some families also have to contend with a looming financial crisis. This may mean the change of educational plans, even the sale of the family home. The provision of life insurance is one of the greatest acts of love any parent can give to their surviving family.
How does life insurance work?
Life insurance is a policy taken out for a term, usually a period to reflect and cover children as they grow up. So, you might choose a term which encompasses your family until your youngest child reaches eighteen years of age.
In the event of your death, the policy will pay out a fixed sum of money which should be enough to cover your family's financial requirements. The policy is usually paid with a monthly premium or instalment. A life insurance payout can cover the repayment of a mortgage which is the key thing for many families allowing them to remain in the family home. It can also help with the expense of University education meaning your children don't have to disrupt or change their plans. Losing a parent is bad enough but losing your home and not being able to finish your education is a further blow on a bruise.
How are the premiums calculated?
Insurance companies will take into account a set of different factors to calculate the premium including:-
- Age – the older you are the most expensive the policy is usually as the risk of health conditions increases
- Lifestyle – drinking, smoking and being overweight will certainly increase the premium as life expectancy is shortened by all of these. A smoking uplift in price also extends to related activities such as vaping
- Health – many policies will use 'no medical required' as an inducement to tempt you into taking out their policy. But the fact is that you will have to answer questions and reveal any pre-existing medical conditions. Failure to do this could certainly invalidate the cover. Anyone with a chronic or serious medical condition should expect to pay more
- Family medical history – if you have a history of serious illness within the family, this can impact on the price of cover
- Occupation – if you are a professional bomb disposal expert then clearly your premium is going to be higher than someone who works in a bank
- Length of term – longer terms policies tend as a rule to be more expensive than shorter-term policies, usually ten years or less
- Amount of cover – the more cover you want for your family, the higher the premium will be
Key points to remember with life insurance
- If you have a term policy running for a long period of time then you should review your likely payout regularly. This is to ensure it will be enough to cover your family's needs as they change. As a rule of thumb, you need to cover at least, ten times your annual salary or the salary of the highest earner. This is until your children have finished full-time education. Review your plan regularly to ensure it still meets your needs
- Shop around for cover and don't just be lured by glossy television commercials. You could end up paying much more than you need to
- Life insurance payouts can go outside probate which is the name given to the administration of someone's affairs after they have died. The value of the policy could, however, be used to help calculate any Inheritance Tax burden unless the policy has been placed in trust. A trust will divert the funds to the benefit of the beneficiaries in which case it will be IHT exempt. Policies that go outside the estate can usually be paid quickly and simply. All that is needed is a copy of the deceased's death certificate. That can help ease financial worries in the immediate aftermath of the death of a loved one. A joint life insurance policy will automatically pass the proceeds to the surviving policyholder. This will be free of IHT
Many people think about life insurance as part of the arrangements for the drawing up of their will. If you have a policy, make sure your family or executors know about it and where they can find the paperwork.
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