Life assurance

If you have dependants it is probably a good idea to take out some life assurance as you never know when the Grim Reaper will come calling!

You could take the gamble and if you survive until your dependants have flown the nest you will have saved yourself some cash but if something did happen to you would your dependants be able to maintain the lifestyles that they have been accustomed to? If they could then you possibly don’t need life assurance, if not then you should at least consider taking out some life assurance. There are two main types of life assurance either term assurance or an endowment policy

Term assurance

Term assurance provides life cover for a fixed term only, and will only pay out if the person whose life has been assured dies during the term. A term assurance policy has no investment value whatsoever.

Under a level term assurance policy the sum assured remains constant during the term of the policy.

A decreasing term assurance policy decreases the sum assured over the term of the policy. This type of assurance is mainly taken out by people with capital and interest mortgages because the balance outstanding decreases over time as they make repayments.

Endowment policies

An endowment policy combines life assurance cover with a savings policy. These policies exist for a set term and a cash sum is paid out at the end of the term if life assured is still alive or on the death of the life assured. Bonuses are generally added to the policy on an annual basis. Endowment policies were generally used to repay interest only mortgages.

Endowment policies have received their more than their fair share of bad publicity over recent years and this has mainly been concerned with the policies being miss sold in the the first place and also due to some policies not maturing to the levels expected because of decreases in bonuses in recent year.

How much?

If you do decide to take out life assurance how much of a lump sum would your dependants need to pay off the mortgage, how many years of your income would be required to keep them comfortable, to see them through school, university etc. The easiest way of calculating this value is to multiply your annual income by the number of years your family will need support.

It may be tempting to over insure yourself so that your dependants can live life in luxury but if you do survive then this could be rather expensive and unnecessary.

If you do decide to take out life assurance remember to shop around for the best deal as a first point of call try the following moneysupermarket, who offer a wide range of policies from numerous life assurers. If you are in any doubt about the need for life assurance or how much then contact an independent financial advisor.