Life Insurance
What is it?
A policy that pays out a lump sum or income to dependants in the
event of your death.
Why do you need it?
The loss of a spouse or parent can leave dependants with
additional issues to cope with other than the emotional. If you are
inadequately insured, your dependants may be left with a
dramatically reduced household income, which could affect their
quality of life. Potentially there may be reduced opportunities for
children such as the ability to pay for a university education or
difficulties in maintaining mortgage payments on a reduced
income.
In the event of your death, a lending institution will not write
off your debt. Rather, they will continue to pursue the debt
through your dependants and could, ultimately, foreclose on the
loan meaning the loss of the family home.
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 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