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Contact us | www.future-financial.co.uk | E-mail your comments | Archive | |
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Family income benefit We may be coming out of the recession only time will tell but even if we are, there is no need to be wasting money.
Yet thousands of families could be doing so if their life insurance is not properly structured. As our families grow up, they tend to become more expensive. But by the same token, the time span during which we have to provide for and support children shortens. Similarly, the amount of repayment mortgages are likely to be shrinking and with less time to go to eventual repayment. This could mean that the time comes when the need for life insurance while certainly not disappearing could well be reducing. More money less time to cover how the need for life insurance is calculated will depend on individual circumstances, but as a rule of thumb, it should be at least sufficient to clear all borrowings including mortgages, other loans and credit card balances as well as a regular income to cover all living expenses until the “survivors” can fend financially for themselves. In the case of a non-earning spouse, this could be right up to and beyond retirement, but for children should not last much longer than graduation from a first degree. So the pattern of cover needed in total is probably rising during the early life of a family, then levels off and starts to reduce later on. What does this mean in practice? For younger families, level or even increasing term insurance is probably a good idea because this will ensure that growing financial needs can be taken care of, should the principal breadwinner no longer be about to provide for them. However, later on, it could be worth considering switching partly to a decreasing basis of cover. Family income benefit might be appropriate in many cases. This is because cover is expressed as an annual amount perhaps £25,000 a year, instead of £250,000 as a lump sum. This means that the insurance company knows that its maximum exposure to a claim gets smaller each year and it can afford to charge less, throughout the entire term, to reflect this. Of course, it is also worth having a lump sum as well, to provide for immediate needs on death and in order to repay mortgages, although in the latter case, the outstanding balance will be falling so, again, a reducing sum insured may often be appropriate. Costs Because people are now living longer than previous generations, the cost of life insurance generally is falling. So you might find that restructuring your cover to reflect current and future needs could either save you money, or provide more cover at similar cost. Not just the main earner It is worth remembering that in most families, there is more than one earner and the loss of any one of these could affect the standard of living of those left behind. Even in families where one is a full time carer, the need for insurance could be quite significant, because someone may have to be paid to provide the ‘services’ lost. So it is important to ensure that both partners have adequate life cover. You should take individual professional advice before making any decision relating to your personal finances. Key Points: > Life insurance costs have been falling > More cover may be possible for similar costs > ‘Economically inactive’ parents also need insurance |
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