Insurance

Life Insurance

What is it?

A policy that pays out a lump sum or income to dependants in the event of the policyholder dying while the policy is in force.

Why do you need it?

The loss of a spouse or parent can leave dependants with more problems to cope with than the emotional. An inadequately insured individual can leave their dependants with no home, dramatically reduced household income (and therefore quality of life), and reduced opportunities for their children (e.g. university education). In the event of an individual’s death, a lending institution is not going to write off the debt. Rather, they will continue to pursue the debt through their dependants and could, ultimately, foreclose on the loan meaning the loss of the family home.

How does it work?

In calculating premiums, the Life Insurance actuaries consider the individual’s age, sex, health and habits and decide when the average person within that profile will die. To do this, they rely on a set of statistics called ‘morbidity tables’. These can predict, with reasonable accuracy, the approximate date of death of an individual within one of several ‘sets’ (e.g. male / female, smoker / non-smoker etc).

What will the State provide?

The main benefits the State may provide are the Widowed Parent’s Allowance and Child Benefit. Depending on whether the widow (er) qualifies for Income Support, the State may or may not help with paying the mortgage interest. The method for calculating which benefits an individual may qualify for is extremely complicated. More information is available at the Department of Work and Pensions website (http://www.dss.gov.uk)

Things to bear in mind

There are many different types of plan, designed to address different shortfalls. These include:

Level Term Assurance
Pays out a set amount of money in the event of a successful claim. These are good for personal or family protection or to protect interest only mortgages.

Decreasing Term Assurance
Pays out a lump sum that decreases annually as the policy term progresses. These are good for repayment type mortgages.

Family Income Benefit

Pays a stepped benefit that can be received monthly or annually and are generally used to protect against the loss of income through the death of the breadwinner(s).