Friday 29 June 2018

Finance Fridays – Life Assurance

We were looking at choosing a financial adviser for last week's Finance Fridays. This week we are talking about something you may want to consult an financial adviser about – life assurance. Why it is assurance rather than insurance? Morbidly because you are assured to die while you insure against the risk of other things possibly happening. Many of us are in situations where if we were to die we would leave a financial hole. This could be because you have a family that needs supporting or a mortgage that needs to be paid. Life assurance can seem to be very confusing and premiums can differ vastly depending on the individual and the cover amount. Let's have a look at some of the common queries.

What types of life assurance are there?- There are two basic types of life assurance – term and whole of life. Term policies run for a certain amount of time. This is often to cover a mortgage or a dependent child. If you have a whole of life policy you will be covered for the entire period the premiums are paid for.

How much do I need to cover? - This depends on the financial liabilities you have. You may want to make sure a mortgage is paid off. In addition to this think about the salary that would be missed if you die. If you have a member of the family who has no or a low income due to looking after children also think about how much it would cost to put alternative care arrangements in place. It is usually recommended that you have cover of at least 10 times your annual salary.

What affects premiums? - There are a number of factors that affects the cost of monthly premiums. Obviously if you want cover for a large sum of money then it will cost more. As you get older the premiums for new policies will be more expensive as you are more likely to die sooner. Your health is also a big factor. Some insurance companies will insist on you having a medical before they provide you with a quote. If you have to self-declare always be totally honest with your answers as the insurance company may not pay out if they find your death was down to an undisclosed medical condition. One factor that has always affected life assurance premiums is if you are a smoker.

Are you already covered? - If you are in a company pension plan then often you will be covered as part of their 'death in service' benefits. This can range from a year's salary up to a very generous 4 times your annual pay. You usually have the choice to nominate who you want the benefit to be paid out to. Bear in mind that as pension plans are written in trust so ultimately it is up to the pension plan trustees to decide and approve. I used to work in occupational pensions and I would say that 99% of the time the death benefit was paid out to the nominated beneficiary. In the cases the trustees decided otherwise it was because of complex personal situations. Any money that was approved for children went into trust for them to access at a later date rather than being paid out immediately so that is something worth noting when you make your nominations.

If you want to join in with this week's Finance Fridays then add your link to the linky below. Any post concerning financial matters is allowed. Full details here. It doesn't have to be published today as you have until 23.55 on Tuesday 3rd July 2018 to join in.

Finance Fridays

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