Term Life Insurance Help and Guidance
Making Mortgage Payments for a Young, Financially Unprotected Family
Dec 4, 2008
A term life insurance policy provides a lump sum payment to a specified beneficiary upon death. It protects the family from financial difficulties. Critical illness and life insurance are regularly sold as a package as being diagnosed with a terminal illness is equally destructive. Having no life insurance leaves a family in a very vulnerable situation.
Types of Term Life Insurance
- Level term life insurance. This offers an identical amount of cover no matter whether the policy holder dies the next day or after 15 years.
- Decreasing term life insurance. The amount of cover reduces each year. Decreasing term life insurance is usually used as a means of mortgage protection in conjunction with a repayment mortgage.
- Increasing term life insurance. The amount of cover increases each year to keep pace with inflation.
- Convertible term life insurance. This allows the policy holder to switch to a different type of cover at a later date, such as a whole of life policy.
- Family income benefit. Instead of a lump sum payment, a family is paid a regular sum of money until the end of the policy.
Who Should be Covered by Life Insurance?
Whilst the main bread winner is usually the person who is covered, it doesn't mean that the other partner shouldn't be. For example, how much would it cost to pay for child care costs or to hire a live-in nanny? It can be more cost effective to arrange a joint life insurance policy.
How Much Life Insurance Cover is Needed?
This can be a difficult question to answer, but it should be at least enough to pay off the mortgage. Whether further cover is needed will depend upon many factors, including: schooling fees, business interests, outstanding debts and general living expenses.
What is the Cost of a Life Insurance Policy?
The cost of the policy will depend upon how much cover is needed, smoker or non-smoker, pre-existing medical conditions, sex, age, family medical conditions and number of people covered by the policy. The information provided is then passed onto underwriters to calculate the monthly premium.
Tax Implications
A life insurance payout is not normally taxed, although it does form part of the deceased's estate so could potentially be liable to inheritance tax. Consult a solicitor or financial advisor about placing the life insurance policy into trust if this is likely to be an issue.
Compare Life Insurance Prices Online
The majority of people buy their life insurance policy from their bank, but it is more sensible to compare life insurance prices using an online checker. This will trawl the entire market to identify the product that has the most suitable coverage at the best price.
Other Considerations When Choosing Life Insurance
When choosing life cover, always talk to the financial institution to find out their attitude towards claims. A number of institutions are looking for ways to reject claims so try to gauge their attitude to this. Seek to do business with companies that are working from a position of financial strength.
It is also important to remember that term life insurance is only one source of protection policy. It is vital that payment protection insurance is also considered in case of involuntary unemployment or ill health.
Taking out term life insurance can give a family genuine peace of mind as it helps cover mortgage payments and other expenses. It is important to do plenty of research before choosing a provider as this decision could potentially make a world of difference should the worst happen.
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