26/09/17What is Life Cover?
When buying a gadget, a gizmo, a white good or a vehicle, do you take the extended warranty?
Most people don’t, believing it to be a waste of money. However, people in the UK are twice as likely to have insurance on a mobile phone than they are to have life cover (Source: Scottish Widows). Whilst this puts into perspective the small number of families that are protected, it also begs the question: why aren’t people taking life cover seriously?
In many cases, it is due to a lack of awareness. So, exactly what is life cover? And why is it so important?
Cover, insurance, assurance
These terms are often used interchangeably, but for the most part they mean the same thing. In simple terms, you pay monthly premiums, and a lump sum of money is paid out if you die whilst covered by the policy.
When a family suffers a death, money is often the last thing on their mind. A lump sum can support the family through the difficult time, ensuring that certain things are paid. These can be short-term, such as:
- Utility bills
- The cost of living
Or long-term, such as:
- Paying for school fees
- Higher education / university costs
- Retirement plans for surviving spouse or partner
Financial worries and stress can exacerbate what is already an awful time. Life cover can allow a family a financial buffer while they are busy picking up the pieces.
There are two main types of life cover:
- Term Assurance policies which run for a fixed period of time
- Whole of Life policies that last, as the name suggests, for the whole of your life
Who needs life cover?
Technically, you don’t personally need life cover. You family may disagree, however.
Generally, life cover is important for those that have:
- Dependents, such as children
- A partner or spouse
- A family living in a house that you pay a mortgage for
Whilst most people who have life cover feel more confident about the financial future of their family should they die, it wouldn’t be true to say everybody needs it. Those that have no family or dependents have no real need for it. The same applies if you are confident that your partner or spouse earns enough to support your family alone.
If this is the case, care should be taken to ensure that your family can cope if both you and your spouse die.
Life cover is too expensive (and other excuses)
The most quoted reason for not having life cover is that it costs too much (Source: Royal London). This may be true with certain providers, or if you have particular health conditions, but generally life cover represents good value for money. With protection often starting from just a few pence a day, protecting your family in the case of an emergency works out fairly cheap in the long run (arguably a better decision than insuring your mobile phone against a cracked screen).
Of course, the bests deals can be found by those that shop around. Getting the best price is important for most financial products, and the price of life cover can vary, based on factors such as:
- Your age
- Your general health
- Your lifestyle (smoking / drinking status)
- The length of time you need the policy to cover
Generally, people who want life cover find the best deal, and sign up with a provider. However, it isn’t unusual for employee packages to have ‘death in service’ benefits. These policies often cover you for a multiple of your salary, giving you (potentially) a better deal.
This benefit will end if you stop working for that employer, but it is something to be aware of when researching protection for you and your family.
It isn’t a subject that many like to ponder, but protecting your family from a death, either sudden or expected, can avoid any unnecessary worry, stress or grief. A professional financial adviser can ensure that this happens, by helping you put the right measures in place.
For more information on life cover, get in touch using the phone number at the top of the page.