Buying The Right Life Insurance
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by: ChrisClare
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Where do you start when it comes to buying life insurance? What questions do you ask, and what answers do you need? Hopefully by reading on you should have some clue as to how to go about fulfilling your life insurance needs.
At the outset choosing any financial product can be quite daunting as there are many choices to be made. You will have to take into account the services provided by a wide variety of companies, the return that you get from the product you purchase and indeed which product best suits your circumstances. The beauty of life insurance is that only two factors need be considered: the amount that you require and the timespan of that requirement. Once these are taken into account then it is simply a matter of choosing a company that suits your budget.
The amount you will need depends on what you require covered. If, for example, it is a mortgage worth 120,000 then you will require 120,000 in cover so that in the event of your death your dependants will be able to settle the mortgage.
If family protection is the kind of insurance you need then working out the cover required is slightly more complicated. You need an insurance policy just to protect your family, therefore you need to establish how much worse off your family would be on your death.
The best way to assess this is to take into account your annual income. Lets say that you annual income is 30,000. In the event of your death your family would therefore be 30,000 worse off. So what would be required would be 30,000 cover per annum.
There are two different approaches to this. The first is called family income benefit. The way this life insurance scheme works is that it covers a certain amount of money per year over a specified amount of time. So basically, 30,000 coverage over 30 years would mean that the policy would pay out 30,000 each year over the period of 30 years.
This sort of policy can also be made to include indexation. What this means is that the money paid out per annum will essentially increase in line with the rate of inflation. Your family will essentially benefit from the pay rise that you would have received had you still been alive and earning.
The second option open to you is a lump sum life insurance plan. The difficulty posed with this type of policy is that you have to calculate how much of a lump sum you need to in order to guarantee your predetermined 35,000 payout per annum. This can prove problematic as you cannot predict how your money will be invested, nor can you know how much return it will give in the future. Therefore, with 35,000 being subtracted from an unknown amount every year, you cannot know how long it will last. The widely taken guideline is that you must factor in a minimum of 10 times the required amount, that is to say that 35,000 per annum requires a lump life insurance sum of 350,000.
All this said were a requirement such as a set amount of money per annum is there you should always strongly consider family income benefit because, as stated earlier it is designed to do one thing and that is to pay out an amount of money each year and to include a pay rise each year. This type of cover will always take out the uncertainty of investments and it is far better to know that your dependents are getting the right amount of money into the future.
So in summary cover needs to be sufficient to meet the needs that you have laid down and it needs to be for the right amount of time that is right sum assured and the right term. A lot of internet based web sites have loads of information designed to make this whole process easier so don't forget do your research and if you are still unsure ring them and ask to speak to one of their advisers.
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