Most people who have life insurance don't think much about it. They sign on the dotted line, pay their premiums, file and forget. But life insurance needs, like other insurance needs, can evolve over time, so it's useful to be informed about the different life insurance products available and how they might suit you.
The most basic form of life insurance is called term insurance. This is a life insurance policy where the policy holder signs a contract for a specific time period, known as the term. Included in the contract is the amount of life coverage. For example, a term insurance policy may insure your life for the sum of £100,000. Each month, the policy holder pays the required monthly premium that is set out in the term insurance policy. It is essential to keep up to date with these premiums so that if you die, the beneficiaries of your policy will be paid the agreed amount.
Your term insurance needs may change with your personal circumstances. It is important to consider what's going on in your life and what the insured sum is supposed to replace. For example, if you are the main breadwinner, your term insurance may be intended to replace your income until someone else is able to earn. It may even need to fund retraining for your spouse.
How To Select The Amount Of Life Cover
When deciding on the amount of term life insurance you will need, take the same
approach that you do with other major financial commitments. In other words
work out what your family will have coming in and what will need to go out.
Loans, credit cards and mortgages will still have to be repaid but you may be
able to balance those against income from savings, investments and property.
If your spouse will receive a pension after your death, or will get other benefits
from your employer or the Department for Work and Pensions, then this can be
subtracted from the overall amount you will need.
Another thing to consider is the cost of bringing up your children. Education alone can cost thousands of pounds per child between pre-school and university – and that's not including swimming lessons, ballet and football, to name just a few. You might want your term insurance to enable your surviving family members to maintain the lifestyles they have always had for as long as possible. Single parents may also need to consider how much others will need to look after their children.
When choosing term life insurance, the age of your children will be a consideration.
Children who are almost grown up may cost less to support than those who are
still in nappies.
Aside from child care and education, your life insurance policy should cover
the cost of your funeral and burial and any taxes that might come out of your
estate. This will ensure that surviving family members can begin the process
of grieving without financial worry.
