Smell the cheese

Of course we all want to remain optimistic for the future which could perhaps cause some of us to shy away from the notion of life insurance - it can feel like a rather morbid thing to be considering. Maybe it's necessary to think objectively about why it's a good idea, imagine, for instance, what would happen to your family if you were to pass away today. Would they be able to cope financially if your current life insurance is insufficient or you have no cover at all? Consider for a moment the impact on your families income should your contribution be taken away.

To be blunt, for anyone with a family depending on their income life insurance is a must. What life insurance buys you is piece of mind, the certainty that if your contribution was removed your family would at least be able to continue there lives in comfort.

If you are the main breadwinner it should at least be a priority to have enough life cover to pay off your mortgage and other significant debts, leaving your family with the burden of debts they can't afford to pay off isn't something anyone would want as a legacy. Yet somewhat surprisingly as many as a quarter of homeowners don't have enough cover to pay off the mortgage, a fact which serves to point towards a gaping disparity in the UK between the cover we should have and that which we currently do have – reports suggest we're a staggering £2,000,000,000,000 short!

So if you haven't already it really is time to give life insurance some though, here's a brief guide to the options:

• The basic types of policy are term insurance, endowment insurance and whole life insurance.

• Of these term insurance is the most affordable option. This is a policy that will run for a specific period of time as chosen by you at the time of application. There are a few possibilities here – level term insurance where the sum insured will remain level, decreasing term or mortgage protection insurance which will see the sum decreasing in line with the reducing balance of a capital repayment mortgage or increasing term where the sum will increase according to RPI or a fixed percentage. It is worth bearing in mind that the policy will only pay out if you expire before it does.

• As the name suggests whole life insurance provides cover throughout your life and will only end at the point of your death, regardless of how old you live to be. In many cases they will be associated with an investment and thus prone fluctuating premiums. Whole life insurance isn't going to be cheap, you're basically buying a guaranteed payout.

• Endowment policies are often taken out with decreasing term insurance to hopefully counterbalance diminishing payout based on a decreasing mortgage debt. Their accumulation does however depend on investment markets so nothing is guaranteed.

Copyright (c) 2007 Jay Smith

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