Why life assurance is important to your family and loved ones

Money’s tight and everyone’s looking out their bank statements for ways to make savings on all those direct debits that flow out every month.

One of the payments most of us circle as a ‘maybe’ to cancel is life assurance.

Often, it’s a hefty few quid every month going out and life cover is spending that the person footing the bill never receives the benefit from.

Before you cancel that direct debit, have some careful thoughts about the pros and cons of life assurance for you and your loved ones.

Life assurance is designed to pay out a lump sum on the policyholder’s death.

• Term assurance covers someone’s life for a fixed period, like 10 or 20 years. Within term assurance are several different pay out and payment plan choices.

• Whole life assurance provides cover from the start of the policy until you die, when a lump sum is paid out.

Policies can cover couples, often on a ‘joint life first death’ basis, which means the policy pays out a lump sum when the first person dies.

If you’re young, single, rent and have no dependents, then life assurance is worth the investment if you have cash to spare – because if you shop around you can buy cover cheaper now than when you settle down later simply because you are younger and hopefully fitter.

If you own a house, you should consider some cover so you can pay off the mortgage and pass the property on to your loved ones.

The same goes if you are living off savings, investments or a pension and your partner has an income too, then life assurance is probably not worth the cost for either of you.

For everyone else, some serious thinking is required before you cancel any life assurance.

• You can probably never buy the same cover as cheap again because the older you are, the more expensive the cover. This makes cancelling a policy and starting again a few years later a false economy.

• If you are the main bread winner, you need to consider giving your partner and any children a breathing space to get on a sound financial footing while keeping a roof over their heads

• If you are a one-parent family, a payout gives a helping hand to whoever takes on caring for your children while they sort out their new life

• If you care for someone with special needs, you have to think of the costs involved in housing and caring for them should something happen to you.

The probability is most people are under-insured as the mortgage is a reasonably low percentage of most people’s outgoings while interest rates are low.

So rather thinking of cancelling your policy, perhaps you should check if you have enough cover to make sure your family can cover the rest of their monthly spending on essentials like food, petrol, utilities and Council Tax should you die unexpectedly.

Looking at life cover called family income benefit can help here. A family income product pays out a tax-free fixed monthly amount rather than a lump sum like standard life policies. Some family income benefits are indexed linked as well.

You need to look on the web for one of these policies, as most high street banks, building societies and supermarkets don’t sell them.

Type ‘family income benefit’ in to your search engine and lots of comparison sites will come back so you can shop around for a quote.

Summary

• Life assurance is designed to pay out a lump sum when the policyholder dies.

• If you are single or retired, you probably don’t need any new life policies

• Families, homeowners and carers should look at if they died whether life assurance would help others reliant on their income

• Check the amount paid out by the life company is enough for your loved ones’ needs if you pass on

• If you are thinking about starting or increasing life cover, check out whether a family income benefit policy is more cost-effective and better suits your circumstances.