Life insurance...not just for mortgages

Wednesday, 4th May 2011 16:40 - by Resident IFA

You obtain a mortgage, and then you obtain life insurance. Right? This, indeed, is the oft-travelled path; whether the life insurance is arranged via an Independent Financial Adviser (IFA), Bank, website, etc. Who knows, the ‘protection’ budget might even stretch to the inclusion of Critical Illness cover within the policy! In my experience, most people then ‘shut up shop’; closing their minds to providing more cover for family protection purposes. I do not dispute the fact that if, in the case of two people holding a joint mortgage, the minima of the removal of said mortgage will undoubtedly lessen their financial burden to the tune of (say) a few hundred pounds per month and secure the roof above the surviving partner/dependent’s heads. But, what next? If there are a couple of infants or young children needing care, and the household has lost a whole wage to pay for food, heat, petrol, clothes, and many other expenses, then having no mortgage alone might not be the panacea for all ills it at first seems. It is likely that relying on State Benefits or the living partner being ‘forced’ out to work is far from ideal...on many levels. I have run a sample life insurance illustration, so let’s look at the following scenario: o Level cover i.e. the amount of benefit does not increase or decrease o Joint policy for a non-smoking couple o Both 30 years of age o Term of cover is 20 years o Amount of cover is £250,000 The most competitive premium for this came out at £16.57 per month (subject to underwriting acceptance). If you re-quoted for two sole life insurances, the total premium would be a few pounds dearer per month, yet effectively double the cover i.e. were both to die when the policies were in force, then 2 x £250,000 would be paid out. Inescapably, extra commitments each month are extra commitments; especially when working to a household budget that items such as petrol and price inflation generally are currently eating into at a rate of knots. That said, how many of us appreciate quite how ‘inexpensive’ some extra life insurance might be? Life insurance purely provides peace of mind; leaving you safe in the knowledge that your dependents have a financial buffer in place should you pass away prematurely. Over to you. Until next time...