Five Questions About: Life insurance

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The Independent Online

Who needs life insurance?

Many people take out life insurance only when they become parents. However, it can also be sensible for people with a shared financial commitment, such as a mortgage.

Do stay-at-home parents need insurance?

Although it's often the main breadwinner who takes out cover, it's also worth considering insurance if one partner remains at home with any children. After all, if they became unable to look after their family, it might be necessary to pay someone for childcare.

What is term insurance?

The least expensive type of policy is term insurance, where the insurer will pay out if the policyholder dies during the term, but pays nothing if they survive past the term. Level term policies pay a fixed amount on death during the period but there are cheaper policies where the amount payable decreases as the term goes on. That's particularly suitable for households where the mortgage is the main concern, as it reduces over time. Conversely, increasing term policies up the amount payable each year to ensure the benefits are not lessened by inflation.

Any other options?

Parents may choose family income protection or benefit, which pays out a regular sum on the death of one partner until the end of the policy. A more expensive option is whole-of-life cover, which invests some of the premiums and guarantees to pay an amount on the death of the policyholder. Because the insurance company has to pay out eventually, this will cost more than other insurance policies.

How much cover do I need?

A guide is around 10 times an individual's salary but this is a very rough guide – it's important to consider the size of any mortgage or debt, as well as the amount needed to cover day-to-day costs and extras such as holidays. The age of the policyholder may be a factor. A parent with a large mortgage and children in private education, for example, may require far more cover in order to protect their family's future.

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