Life Insurance – What can it do for me?

Making the decision that you need life insurance can be a tricky one and depend on a wide range of things in your life and circumstances. Working out what your life insurance policy will do for you and your family is also dependant on the type of insurance you take and the therefore the level of cover if affords you.

So in general terms what will your Life Insurance do for you?

Life Insurance is designed to pay your family a lump sum of money (known as the sum assured) when/if you die during the policies coverage period (known as the term).

It is important because without adequate cover, your family could be left without a main breadwinner but also with a mortgage to continue paying or other commitments to continue making on your behalf.

The exact amount that is paid to your family and how long the cover protects your family, is dependant on your individual policy and can be chosen by you when you take your policy.

How much cover do people usually choose?

The amount of cover usually taken depends largely on a persons personal circumstances but in general people tend to adapt their insurance to match their mortgages and liabilities, or to leave a specified amount to their family to cover funeral expenses (using life insurance as a type of burial insurance) or a number of years of replacement income.

Here are some case studies to help you choose:

• Mrs and Mrs Smith
• Married
• 2 Children
• £100,000 Mortgage over 25 years

Mr and Mrs Smith choose a mortgage life insurance policy with a sum assured of £100,000 and a protection term of 25 years. They take the policy jointly so that if either one of them dies during the next 25 years, the mortgage will be paid off in full.

• Mr Jones
• Widowed
• 1 Daughter
• No mortgage or other liabilities

Mr Jones is concerned that his daughter will be left to pay for his funeral arrangements. To prevent this financial burden passing to his daughter, Mr Jones takes out a life insurance policy that will pay out £5000 in the event of his death. This allows Mr Jones the peace of mind that his funeral expenses will be covered and that his daughter won't be left with a hefty bill.

• Mrs Brown
• Married
• 2 Children at Private School
• £150,000 Mortgage over 19 years

Mrs Brown is concerned that if she were to die, her income would be lost and her husband would find it difficult to continue their two children's private education whilst having to pay the mortgage by himself.

To cover her family, Mrs Brown opts for a Family Income Benefit policy which instead of paying a one off lump sum, will pay a monthly income to pay for the children's private school until they are both 18. She also decides to cover the mortgage with a standard life insurance policy for £150,000 over 19 years.

This protection package means that if the worst were to happen, the mortgage would be paid in full and her children's education would be secured.

As these case studies show, life insurance policies are highly adaptable to suit every possible circumstance.

At the end of the day, as well as providing essential financial protection, life insurance is just as much about providing peace of mind to both you and your family. Without it, your family could be left in a terrible situation at a time when they are also grieving for you.