Everyone wants to do their best for their family and loved ones – but thousands of families have not purchased insurance to provide financial protection should the main breadwinner die or fall ill. This puts the family at risk of being plunged into poverty should the worst happen.
It’s not as if there’s a shortage of life insurance, critical illness or income protection policies. The problem is too few people are buying them. The insurance industry believes that the insured shortfall in the UK is a staggering 2.3 trillion pounds.
So lack of family protection is clearly a problem. There are two main risks in life: either living too long and dying too soon. It’s absolutely crucial to have some cover in place – especially if you have a young family. It’s a well to build yourself your own little welfare state because no one else is going to do it for you.
Now is also a really good time to buy as fierce competition within the insurance industry has led to some very competitive premiums. The cost of life insurance has fallen by about 40 per cent in the last five years. So it’s never been cheaper.
So, where do you start? Well, before searching for the best offers on the internet or seeing your financial adviser, you should do a little homework. You need to know what type of policy might suit your needs.
Life Insurance – The purpose of life insurance is to provide a tax free lump sum if you were to die. This money is normally used to repay any outstanding mortgage, pay off debts and provide capital for dependents. If you have a mortgage but no dependents, then you don’t have to insure for the mortgage as the property can be sold to repay the debt.
There are two main types of life cover – “level” and “decreasing”. Level means that the insured sum remains constant – level – during the entire duration of the policy. Decreasing means that the sum insured steadily decreases from the initil sum insured down to nothing by the time the policy terminates. This latter type of policy is used almost exclusively in connection with the protection of repayment mortgages.
Critical Illness Insurance – Critical Illness insurance pays out a tax free lump sum on the diagnosis of a a critical illness, such as a stroke. The types of illnesses covered are always listed on the poilcy and are usually extensive including the big three heart attack, stroke and cancer. There are no restrictions on how a payout can be spent, so you can do anything from clearing the mortgage to paying for private healthcare or investing it for income.
Continue reading ‘An Introduction to Protection Insurance’ »
