Each year about 3,000 people celebrate their 100th birthday, but not many of us will live to such a ripe old age. Sadly, some will die prematurely either in an accident at work, or on the roads or from a sudden illness. For many families hit by the death of the breadwinner, bereavement may soon be followed by financial turmoil as the household income dries up. And while state benefits provide some help, their impact is marginal, if not woefully inadequate.
For families who wish to avoid such financial traumas the answer lies in the purchase of life insurance - in simple terms a policy that pays out when the insured person dies. It is an essential buy for anyone with dependents, particularly partners and children.
But buying life insurance is not as simple and straightforward as it should be. There is a wide range of policies on the market, some of which are poor value for money.
Who needs life insurance?
Generally anyone who has dependants. Most people’s largest financial protection needs occur when they marry and have children, usually between their mid-twenties and early forties. It is at this time that the death of a parent can have the most serious financial repercussions on a family. It is vital that financial protection should be in place to replace an earner’s income or to pay for carer services until the youngest child reaches 18.
When children become independent, the need for parents to maintain high life insurance cover becomes less of an issue and they can begin to address other key financial affairs such as saving for the future. However, insurance protection should remain in place to cushion the impact of their partner’s death on their standard of living.
Before buying life insurance cover, decide how much you need. One rule of thumb is four to five times your yearly take-home pay. But also look at any death or illness benefits that come with your job. There is no point in doubling up cover unnecessarily. And know that if you have no family commitments, then life cover is just a pricey luxury.
As well as buying life cover, you can purchase critical illness policies that pay out a lump sum if you have a serious illness, such as a heart attack or cancer, and survive for a month. Some policies also pay if you die during the policy period. The same huge range of prices exists, so never, ever go for the first quote you get.
Some policies, known as permanent health insurances or income protection plans, promise to pay a monthly sum until your normal retirement age if you can’t work due to illness or injury. These policies can be expensive, especially for women because insurers think women are ill a lot more often than men.
Always look at all your family and personal finance circumstances before signing up for a life insurance policy. If you don’t really need it, then don’t buy it. The monthly premiums could be used to help build up an investment nest-egg.
Liza_Mathers
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Tags: health insurance, life insurance