Effective Use Of Life Cover
Everyone at some point realises that they do need some sort of life cover but very few actually know what type or indeed how much they actually need. This article aims to clear that up and help to ensure that you have the right cover for your financial situation and the right amount of cover for your particular needs.
To make it simple, if your loved ones are going to be worse off in the event of your death, you need life cover. For example, if there are monthly loan repayments to be met, or if you have a mortgage, or if you are simply the principle earner in your family and if the loss of your monthly income is an issue, you need cover.
So the first thing that you need to think about first and foremost is do you have any mortgages or loans that are currently uninsured? If you do then the need is simple how much is the loan or mortgage amount? Whatever that figure is that is the figure that you need to have insured against death in the first instance and if your budget allows critical illness cover is a must as a secondary requirement.
After you have dealt with mortgage/loan cover, it gets more confusing. Now, separately, you must work out how much you need to protect your family’s interests in the event of your death and subsequently the loss of your income to the family home.
It can be uncomfortable to consider the financial impact our death can have on our family, but it can be easily simplified. Let’s say that you earn 30,000 per annum. If you die, your family is therefore going to be 30,000 worse off every year and will need alternative methods to provide this amount of money. So you will need to provide cover for this in the event of your death.
There are myriad ways for going about this. One way is to take out the sort of policy that pays out either a monthly or an annual amount to cover the amount needed. This policy would therefore pay an annual amount of 25000 to protect your family against the loss of your earnings if you died.
Another way to approach this situation, although it should be said that is slightly more complex, is to enquire about Lump sum death benefit. This policy pays out a one off amount in the event of death. It is now common knowledge that this amount can then be invested to provide an income in lieu of salary. The idea is to take out a policy that yields significantly more than your salary that is, say 25000. The benchmark is around 10 times your income or a lump sum equating to 250000.
If the life assured dies then the beneficiaries would receive a lump sum of 200,000 and in theory they would be able to invest this amount of money to produce an annual benefit of 20,000 per annum and therefore replace the lost income as a result of the death of the breadwinner.
So in summary virtually all people need life cover of some sort all you need to do is work out for what exactly you need it for and how much and the solution almost works itself out. That said you will find that good providers of life cover are very capable of working all this out for you and as this is generally something that they do every day there competence is of a high standard in getting the solution both right and affordable for you the client.