Life Insurance - What Do You Need?

Life insurance provides coverage against the financial burden of a death in the household.

Life insurance provides coverage against the financial burden of a death in the household. Should you pass away, your family needs financial security and protection. Life insurance policies cover for unexpected expenses, including funeral costs, medical bills, mortgage payments, college education, and ongoing overheads. Although insurance premiums may be paid in vain if the policy is never used, still passing away is an inevitable event with no time guarantee. Just make sure to properly evaluate your annual household needs in order to purchase adequate coverage.


Types of Life Insurance


The following are the main types of life insurance:


a) Term Life Insurance - Term policies are purchased to guarantee financial protection to your beneficiaries should a death occur in the household within the term of the policy. The financial protection is used to cover short-term needs, pay off your mortgages; fund your children's education or build an emergency fund. In fact, you receive financial protection for an annual premium for a specific period of time (the policy term). If you pass away within the term, your beneficiaries collect the death benefit. If you don't, your beneficiaries collect nothing. You can renew your term policies even if your health is in poor condition. However, renewal is quite expensive and therefore it is better to purchase a 20-year-term life insurance in order to have a better control over your financial situation over the coming years.


b) Whole Life Insurance - Whole life policies provide a fixed death benefit against a fixed premium, but they also incur an investment component because part of the premium is invested to build cash value during the lifetime of the contract. In fact, by purchasing whole life insurance you can effectively accumulate wealth and contribute equity growth to your savings account, from which you can withdraw or borrow money without being taxed. c) Universal Life Insurance - Universal life policies provide coverage against a flexible premium, which can be broken down in your insurance and savings account. Depending on your individual circumstances, you are allowed to transfer money to the savings component and earn a higher return, which can be then used towards the premium payment. Universal life policies grow at a variable rate.


Shopping Around for Life Insurance


Most people purchase life insurance after a major life event takes place. However, to accurately calculate the exact amount of coverage after a financial disaster is pretty hard. Insurance agents suggest that your insurance coverage ideally should be 15 times your annual income, which means that if your annual income is GBP20, 000, your life insurance should provide coverage for GBP300, 000. As soon as you determine the amount of proper coverage, you should consider an insurance agent to assist you with the insurance policies. You can find Life Assurance companies on The Investing Site's Insurance Services section. You can also compare quotes on sites like USwitch, MoneySupermarket, Aviva and Confused. Understand your financial needs, look for different insurers, get several quotes and compare different insurance policies. Check for any extra discounts and evaluate extra savings offered by each company.


UK Legislation for Life Insurance


Life insurance is not legally mandatory in the UK. The purpose of purchasing life insurance is to protect your family in the event of a loss and offer them financial security to cover for the unforeseen expenses. However, there is little doubt that life insurance is important. A low-risk life insurance would cover for unexpected expenses, whereas you could invest the premiums should you have a high-risk insurance. In other words, you can use your life insurance as a wealth optimizing tool, which provides liquidity and/or relatively high return on investment. This allows you to build an emergency fund or just a fund for the retirement years. On the other hand, if you don't buy life insurance, you should be able to find effective answers to the following questions: What direct expenses will your family face should you pass away? For how long would your dependents need financial support? Would you want your family to be financially doomed because of your sudden death?



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