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Finding suitable life insurance

Unlike car insurance, life insurance is optional.  There are of course several practical reasons for this legal position, but viewed from a purely logical perspective you might think that we’ve got our priorities all wrong.  The financial implications of death for anyone with a family or dependants can far exceed the monetary impact of the average shunt in the family car.  However, tightened purse strings in these difficult times are of course totally understandable, and many people will feel that they simply cannot afford regular payments towards life insurance.

If you are being glib about it, life insurance is after all a bet that you will die – not the most cheerful of propositions!  Obviously, we’ll all check out at some point, but when it comes to term life insurance, there is an element of grim wager.  The ‘term’ bit means that the life insurance cover is limited to a specified period, after which the policy is dead and will yield no money.  You may survive the term to earn another day, and in fact you are statistically likely to, but the regular premium payments you have made during the life of the policy will simply be financial history.  So why take a term life policy?

The simple answer is affordability.  It is precisely because you are likely to survive the term, thanks to things like modern medicine, that the life insurance providers like Santander can offer you a policy with low regular premium payments.  This is especially true the younger you are when you take out the policy, for obvious reasons.  If you have a modest income but also a mortgage, products like decreasing term life cover can ensure that your dependants will not lose the family home if they are unfortunate enough to have to deal with your untimely exit during the specified term.

If you don’t like the idea of making regular payments towards a policy that you hope to outlast, there are options short of the relatively expensive provision of whole life insurance.  Whole of life insurance pays out whenever you die, as long as you don’t void the policy through some kind of crazy self-inflicted death.  The assured nature of the eventual claim means that regular premium payments towards the insurer must be higher.  As a side note, the certain nature of the eventual  is the reason why you will often encounter the term life assurance when researching whole life cover.  If you can’t afford the expense of regular payments towards these kinds of policy, you might want to consider endowment life cover.

Endowment life cover acts like a term life policy, except that premium payments are invested during the life of the contract, at the end of the end of which the policy matures.  This means that a qualifying claim during the term will pay the agreed lump sum – known as the sum assured – just as with regular term life insurance.  If you survive the term, you’ll receive a payment based on the performance of the endowment investment fund.  Although this still carries the risk of all investment, that of an underperforming fund, you also have the chance of a pleasant lump sum surprise to help you celebrate your ongoing longevity upon the maturation of the policy.

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This entry was posted on Monday, February 14th, 2011 and is filed under All About Insurance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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