About... Life Cover

Life assurance is a policy that offers a one-off payment or an income after the death of the person named in the policy.

If you’ve seen the first Harry Potter movie - or read the book - then you’ll be familiar with the scene in which Hagrid accompanies Harry to the bowels of Gringott’s bank.

Here, the giant shows the orphan an enormous pile of gold coins. 'Didn’t think yer parents would leave you empty-handed, did you, 'Arry?' asks Hagrid.

When all is said and done, we all arrange life cover either because we have to or because we want to make sure our surviving family are properly looked after if we were to die. But how much gold are you likely to generate?

The bad news is that even if you already have life insurance, chances are it won’t be adequate. The good news is that now is a great time to look for a better deal.  Why? Because the cost of life insurance cover is at an historic low*

Providing you’re in good health, if you took out life cover a few years ago, in many cases, you’ll find it’s cheaper now to get the same amount of cover. Even though you’re older and, in theory, a greater actuarial risk.

*Source - www.channel4.com/4money March 2005

Life & Critical Illness Quotations

Term life assurance

Term life assurance is the simplest - and cheapest - form of life insurance. Basically, you decide the amount of money you want your dependants to get in the event of your death.

Term life insurance pays a tax-free lump sum in the event of death within a specified term. Fixed monthly - or annual - premiums are paid for the duration of the term.

Your age, gender, state of health, the cover and term you require all determine how much the premium will be.

You’re covered for as long as you pay the monthly premiums. If you stop paying the premiums, the policy ends. With this form of life insurance, there’s no cash in value at any time.

If the cover is being arranged to cover a repayment mortgage, one further way to reduce your premiums is to set up what is commonly referred to as Mortgage Protection Assurance or Decreasing Term Assurance.

With this type of plan, the amount you are covered for reduces each year in line with the balance of your repayment mortgage. The amount your cover reduces by is calculated by the insurer assuming that interest rates will not rise above a certain level, normally 10%. Your adviser and the illustration you receive for your plan will be able to tell you what rate of interest has been assumed, however, it is often fair to say that the higher the interest rate assumed the better.

There are plans that offer a 'mortgage repayment guarantee'. With these plans, the amount that is paid out is guaranteed to be enough to pay off your mortgage, no matter what has happened to interest rates. Your About Mortgages adviser will be able to tell you which insurers provide these plans and you will often find that they charge a very similar premium to those plans that do not offer the same guarantee.

How much insurance do you need?

Sadly, almost nobody has as much life insurance as they think they have.

Many people insure their lives for £100,000 because it sounds like a lot of money - and it is.

But is it enough for surviving dependants to live off? Can it pay off all your mortgages, loans and credit cards and still leave a big enough sum to generate an income for them to maintain their standard of living?

After all, even if the mortgage is paid off, the other bills still keep coming in, and some (for example child care) could actually rise in a single parent family.

To calculate the amount of cover you need, a budgeting exercise should throw up the amount of money a household requires to maintain its standard of living for a year.
 

Why not use our Life and Critical Illness Calculator  to work out how much cover you require, or obtain Life & Critical Illness Quotations

Please remember that the amount of life and critical illness cover you need should be reviewed regularly and as your financial circumstances change. If you are unsure of the amount of cover or type of policy you require you should complete an advice request to arrange a no obligation review of your needs.