Life Insurance Search

There are no magical figures to be given as an answer to this question, as it all depends on your individual circumstances.  However there are things to be considered which may help you reach an overall amount.

If either of you were to die, would there be a serious financial consequence for the family because the household is dependant on your combined income.  If this is the case then this is an area to be explored.

Over what length of time would your dependants need your salary replacing?  If you have young children then the length of time or the term may be until the youngest has finished with education and then can support themselves.

The partners that stay at home with the children may also need to be covered; if the children are young then a childminder would need to be employed to enable the other partner to go to work.  The costs of this could have a serious impact on the family’s standard of living if not covered by a life insurance policy.

Look at your monthly bills and expenditure that would be needed to run the household as it is today and then multiply it by the length of time you need the cover.  This will then give you a basis to start from.

In both the above cases inflation needs to be considered as prices constantly rise and the income that provided a  reasonable standard of living today may not in ten years time.

So an amount will need to be considered to cover this aspect.

Will there be any outstanding loans that would need to be paid such as a mortgage or car loan.  Funeral costs also need to be added in.

Once you have come to a final figure there may be things you can do to reduce it.

If you have a policy covering your mortgage then the amount covered needs subtracting from the above figure.  However please check the estimated amount that your mortgage policy is going to produce.  If you have moved or increased the mortgage for home improvements this policy may not have been kept up to date and therefore it may not cover the whole mortgage.

Loans taken out may include insurance that pays the loan off should a premature death occur.  So it is worth while checking your paperwork.  If this is the case subtract the loan amount from the above figure

If you already have life insurance policies deduct their sum assured from the total arrived at above.

Your employer may provide a death in service benefit as a multiple of your salary, ask at work as this is cover you already have in place.  However remember if you change jobs you may lose this cover, check with any new employer if this cover is in place and how much is provided  

If you have a pension fund what does this provide for your family on death this amount can also be taken off the final total if a lump sum or off the income needed to run the household if a regular amount is to be received?

Once you have calculated your capital needs and short, medium and longer-term income requirements you can use a lump-sum life insurance policy to protect your family.

The author is Sharon Bowen who acts as a compliance consultant for Hayes Styling Limited. Sharon is qualified to Dip PFS standard with the Chartered Institute of Insurance and is a member of the Compliance Institute.  Sharon was originally trained by Prudential as a Financial Consultant in 1990 and has subsequently worked as an IFA moving onto senior management roles before starting Hayes Styling Limited. 

This article was written on the 5th March 2007.

This article does not represent ‘financial advice’ as each persons individual requirements will be unique to their needs. If there is something in the article which you which to rely on then please check those details with any person from whom you purchase a term life policy at the time of purchase.

The views in this article represent those of the author and not those of Netbasic Limited.

What follows are some simple explanations of some of the words that are commonly used in life insurance market and in life insurance polices. Each insurer might use a slightly different variation in their own policy wordings so these examples are purely there to assist and help and should not be read as being actual legal definitions.

Life insured. This the person whose life is insured. If this persons dies during the policy period then that is when the policy will pay out.

Insured. This is the original owner of the life insurance policy and usually the person who took the policy out. So for instance a wife may as the ‘insured’ take a life policy out on her husband who would be the ‘life insured’. 

Life office. This simply means the insurance company who is issuing the life insurance policy.

Sum insured.   The amount that is payable if the ‘life insured’ dies during the period of the policy.

Premium.  The cost of the life insurance policy. Usually described as a certain amount each month .

Underwriting. This is the process where the insurance company look at your details and decided whether or not to accept the risk and agree to issue you with a life insurance policy. This might be a quick and simple process or it may take some time and involve medical reports with perhaps the insurance company imposing certain extra terms to the policy. .

Proposer. This is the person who applies for a life insurance policy.

Term life policy. This refers to a life insurance policy which pays out on the death of the ‘life insured’ if that person dies within the ‘term’ (period) of the policy. The policy for example could run for ten, twenty or twenty five years.

Decreasing term life policy. This refers to a ‘term life insurance policy’ where the sum insured reduces at a pre-agreed rate. This type pf policy is often used to cover the reducing outstanding balance of a repayment mortgage.

Level term life policy. This refers to a term life insurance policy where the sum insured remains level during the period.

Joint life. This refers to a life policy which covers not one but two or more ‘life insured’s’.  Quite often used by couples who appreciate that the family would suffer if either of them was to die. 

Critical illness.  This refers to a type of coverage which would pay out the sum insured if the insured life was to be diagnosed with a ‘critical illness’ being an illness which appears on a pre-agreed list of critical illnesses.  For some illnesses there is a set level which the illness may have to attain to be regarded as critical. All the illnesses are spelt out and agreed in the policy. Critical illness may be added as an extension to a life policy or sold as a separate policy.

Terminal illness. Terminal illness refers to an extension to a life insurance policy. Under terminal illness the policy will payout if the life insured is diagnosed as having terminal illness and not expected to survive for  a set period of months. This extension in cover usually expires 18 months before the actual term life cover is due to expire.

The author is Keith Clark who acts as a compliance consultant for Free to Work Consultancy. Keith is a Fellow of the Charted Insurance Institute.

This article was written on the 28th February 2007.

This article does not represent ‘financial advice’ as each persons individual requirements will be unique to their needs. If there is something in the article which you which to rely on then please check those details with any person from whom you purchase a term life policy at the time of purchase.

The views in this article represent those of the author and not those of Netbasic Limited.

Most life polices are single life polices. That means that only one life is insured. A person can take a policy out on their own life. That is called an own life policy. Alternatively someone may take out a policy on the life of another person. That is called a life of another life insurance policy and there must be some insurable interest. For instance a wife insuring her husband or visa versa.

Often a husband and wife will take out a policy on their joint lives. In these cases the choice is between a policy that pays out on the death of the first life insured or one that pays out on the death of the second life insured.  The first death policies are usually taken out with a view to protecting the family. Second death polices are often used in inheritance tax planning. The premium for a first death policy would always be a little more expensive than a second death policy.

The three basic types of life insurance policy are ‘term life’, ‘whole life’ and finally ‘endowment’.

Under a term life policy the policy will only pay out if the life insured dies within the policy term.  If the life insured dies outside of the policy term then the policy will not pay.

Level term is the simplest type of term policy with a level sum insured during the whole of the policy period.

Reducing term cover is where the sum insured reduces either each year or each month by a set amount. These policies are often used to cover the reducing outstanding balance of a repayment mortgage.

Renewalable term allows for the policy to be renewed at the end of the term without the need for a medical. These are usually only on offer if the life insured will be below a maximum age limit when the term of the first policy expires.

Convertible term policy includes an option within the policy for it to be converted into a whole life or endowment policy without the need to the life insured to under go any medical.  If the policy is converted then the premium will change to reflect the new basis of the policy. There may be terms and conditions attached to when the conversion can take place.

Under a whole life policy the insurer agrees to issue the policy for the whole of the life insured’s life provided that the life insurance premium continues to be paid.  It is common for whole life polices to start off with a low sum insured and for the sum insured to increase as more premiums are paid into the fund. These policies are said to have an investment factor and if maintained for long enough can be cashed in.

Endowment policies run for a fixed term but include an element of investment. They will either pay out if the life insured dies during the term of the policy or on the maturity date of the policy when it reaches the end of the term insured. These policies can be arranged so that there is a mix between insurance element of the policy and the investment  factor. Sometimes these policies are used as an investment vehicle to pay of a mortgage, however it must be remembered that investments are not guaranteed to match expectations and it is possible for a short fall to occur.

The author is Keith Clark who acts as a compliance consultant for Free to Work Consultancy. Keith is a Fellow of the Charted Insurance Institute.

This article was written on the 26th February 2007.

This article does not represent ‘financial advice’ as each persons individual requirements will be unique to their needs. If there is something in the article which you which to rely on then please check those details with any person from whom you purchase a term life policy at the time of purchase.

The views in this article represent those of the author and not those of Netbasic Limited.