Like most people I know, I’m always looking for ways to save money and it’s always tempting to cut back on life insurance and reduce the monthly premiums. If you’re buying a house, your lender will require you to have life insurance to cover the loan in the event of your premature death but if you really think it through, you’ll realise that you need more life insurance than just paying off part of the mortgage.
Less than a third of adults with children, in the UK, are paying for life insurance and I understand why. We tell ourselves, ‘Nothing bad will happen to us, we can’t afford to spend all that money on insurance,’ but the more dependents that you have, the more important it is that you think the unthinkable and face up to how your family would be affected financially if you or your partner were to die prematurely. It’s not just the money that you owe that you should consider; if you’re the family’s main earner you should take into consideration how the years of lost income might be covered.
Don’t assume that because you are a houseparent that you don’t need life insurance, think about the work you perform in caring for the family, all of which would need to be paid for in your absence. Raising a family is an expensive business, current estimates are that it costs £200,000 to raise a child from birth to the age of twenty-one. We can’t predict the future, but we can be pretty sure that house prices will continue to rise, and that university education will get more expensive. Choosing the right insurance for you and your partner can be a complicated process so you need to explore your options carefully before making a decision and don’t just automatically accept the life insurance offered by your mortgage provider.
You can choose single life cover or joint cover. Joint cover is cheaper, but only pays out for the first passing, meaning that the survivor is then left without cover. Many people opt for a level term policy which pays out a fixed sum at any time during the life of the policy, which is usually about twenty-five years, but it is also possible to take a out a decreasing term policy in which the premiums and pay-outs decrease over the life of the policy. The rationale is that as your dependents get older and your mortgage is paid off, your family would need less financial support in the event of your death. The most comprehensive form of cover is whole life insurance, which is guaranteed to pay out a fixed amount at whatever age you pass away. This is a way of guaranteeing that your family will be provided for financially. However, you do need to be aware that if you were to live to a ripe old age, your contributions might exceed the value of the agreed pay out. Another significant consideration is that you must continue to make monthly payments no matter how old or ill you get because a missed payment will render the insurance void. None of us like to think about our own death or the death of our partner but in the modern world, it’s important to do so.