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What insurance do I need?

Last month we looked at some of the health concerns that insurance companies are now starting to recognise and include in their policies, where previously they would have excluded them. This month we give you a guide to the basics of insurance.

What types of cover are available?

Life insurance has several variations, but the most popular type is level term insurance. The policy runs for a set term, say 10, 20 or 25 years, and the pay-out remains the same whether you die in five years or 15 years. Decreasing term insurance is similar to level term but each year the potential pay-out decreases as it is designed to be used with a repayment mortgage where the outstanding loan decreases over time.

Whole of life cover.

Both level and decreasing term insurance pay out only if you die within the term of the insurance. The alternative is whole of life cover, which pays out whenever you die. It is usually more expensive, but then you have a guaranteed pay-out covering the whole of your lifetime.  This policy is for a set sum, non-investment, to provide cover for such things as funeral costs.

Single or joint life policies.

If you are in a couple, then you might be tempted to purchase a joint life policy because it is cheaper. But it is best seeking advice before you do, because while cheaper, the joint cover only pays out once when the first of the policyholders passes away. After this pay-out, the survivor, and their family is left without cover. To buy a new policy at that point could prove costly, due to increased age or health problems.

What level of cover do I need?

The amount of cover you have, or the sum insured, is selected according to your budget and requirements. Many insurance advisers recommend a sum insured equal to at least 10 times your annual salary. While a family with three children might generally require more cover than a single parent of one with a small mortgage, you should also consider what money will be required for what purposes after your passing, which may make a difference to the cover you require regardless of mortgage commitments.

The general rule of thumb for life insurance is “if anyone relies on you or your income, life insurance is a must.” So, while the family breadwinner certainly needs to be covered the contribution of a stay at home parent shouldn’t be underestimated. How would you cover childcare, work, and juggle the many other commitments of family life if your partner wasn’t there? As always, I am happy to review your specific circumstances so get in touch if you need advice.


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