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Do you value your life?

November 2012

by Nick Plumb – (Plumb Financial Services)

Most people take out insurance for their home contents and their buildings and we all have motor insurance to protect our cars.  Some people even have insurance for their pets.  But more than 60% of the people I meet as a Financial Adviser do not have enough life insurance in place to protect their family if they die.

Unfortunately, life insurance is one of those products that the majority of people don’t have just when it is needed most.  And if you don’t have it when you need it – it’s already too late to do anything about it.

Taking out life insurance is something that many people are quite unsure about, typically prompting questions like;  “How much cover do I need?”  “How long do I need it for?” and “How much will it cost?”

The following information is intended to answer some of the questions you may have about life insurance, and will hopefully persuade you to contact a financial adviser to review your own insurance arrangements sooner rather than later.

Do I need life insurance?

If you have an outstanding mortgage or if you have a dependent partner or children, you need life insurance.  It’s that simple.

If you bring an income into the household, or if you care for children who are financially dependent upon you, then there will be a financial cost to your family if you die.  If the main ‘bread winner’ dies, their salary will have to be replaced.  Likewise, if the partner who cares for your children dies, their duties will have to be taken up by someone who will need to be paid for their services, so that the surviving partner can continue to work and earn. 

If you have an outstanding mortgage, having insurance that pays off the mortgage will not only ensure that your family will have a roof over their heads, but will also save your spouse or partner the cost of monthly mortgage repayments – usually one of the biggest financial commitments each month.

How much will it cost?

The cost of life insurance depends on several factors:  A primary consideration will be how much cover you need, and how long you want the cover to last for.  Also, your age, sex, occupation, health condition and whether you smoke or not are all taken into account when calculating how much your insurance will cost.  This is called the ‘underwriting’ process.

The important thing to remember is that it need not cost the earth and getting a quote costs nothing.

How much life cover do I need?

If you’re the main breadwinner in a family, you will obviously want enough cover to enable your family to be able to maintain their lifestyle so that they do not encounter any financial hardship.  As a guide, the figure should be enough to replace around 80% of your net earnings (your spouse will be entitled to some state benefits) or at least £20,000 for professional child care each year.

How long do I need it for?

I would normally recommend family protection should last until the youngest child is aged 21 years, which ensures that your children will have the opportunity to go through university and (in theory) will reach financial independence after their education is completed. For a mortgage, you should protect the whole of the outstanding term of the loan.

Where do I buy it from?

To ensure you get the very best deal, you should always take independent financial advice when buying life insurance.  Never trust a bank or building society to give you the best deal on your life insurance or mortgage protection, unless their adviser is independent and has searched the entire marketplace for you.  Banks and building societies are usually tied to one company or a small group of companies, and that means that they rarely offer the best premium rates for life insurance. 

Take our £10 Insurance Challenge and save yourself some cash!

If you have a life insurance policy that was arranged by a bank or building society within the last five years, post or e-mail a copy of your existing policy document (showing the sum assured, policy term, and premium, and your date of birth and smoking status), and we will call you back with a free no-obligation quote.  We guarantee to find you a policy that offers the same or better benefits for a lower monthly cost.  If we can’t beat your existing policy, we will send you a crisp new ten pound note in the post!  

Nick Plumb is an Independent Financial Adviser and Practice Principal at Plumb Financial Services of Baylham Business Centre, Lower Street, Baylham, Suffolk, IP6 8JP – Tel 01473 830301.  www.plumbfs.co.uk.

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