Effective Use Of Life Cover
Everyone at some point realises that they do need some sort of life cover but very few actually know what type or indeed how much they actually need. This article aims to clear that up and help to ensure that you have the right cover for your financial situation and the right amount of cover for your particular needs.
To make it simple, if your loved ones are going to be worse off in the event of your death, you need life cover. For example, if there are monthly loan repayments to be met, or if you have a mortgage, or if you are simply the principle earner in your family and if the loss of your monthly income is an issue, you need cover.
So let’s start at the beginning. Do you have a mortgage or loan outstanding and do you have them insured? If you do, and if they are as yet not insured, assess what the amount of that loan or mortgage is. Whatever the value of the mortgage or loan is the amount of insurance you therefore need to protect against loss of earnings after death. If, after you have allowed for that cover, you can also afford critical illness cover, this would be an advisable route to take as well.
The second thing is slightly more complicated. That is to work out what you would need if you are just protecting your dependents or family in the event of your death or critical illness and they stand to lose your income.
Say for example you earn 20,000 per annum, very few people actually consider what impact death would have on their dependents. If you died your family would no longer have the benefit of your income and they would have to seek alternative means to support themselves. In this case you would need to ensure that this 20,000 is suitably covered.
There are many ways in which this goal can be achieved. You can take out an insurance that pays out a monthly or annual benefit for the amount needed. For example a plan that pays out an annual benefit of 20,000 in the event of death would be suitable for someone trying to protect their family in the event of death and the resulting loss of their salary.
Another alternative solution to providing an income on death, but at this point it has to said is a complicated solution, is to provide a lump sum death benefit. Most people are aware that if they are given a lump sum they can in turn invest that sum of money to provide an income. It is this knowledge that makes this solution work quite well. What you do is take out a lump sum life insurance for significantly more that the required amount, in this case 20,000. Significantly more than this would be considered 10 times which would give a benefit amount of 200,000.
When the insured person then dies, the family will receive a payout of 300,000 which is theirs to invest. By investing correctly, this amount should then produce an annual income of 30,000 for the family members left behind. This effectively replaces the income of the family breadwinner.
So in summary virtually all people need life cover of some sort all you need to do is work out for what exactly you need it for and how much and the solution almost works itself out. That said you will find that good providers of life cover are very capable of working all this out for you and as this is generally something that they do every day there competence is of a high standard in getting the solution both right and affordable for you the client.
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