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Life Insurance -
The importance of Life Insurance |
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We are all familiar with the mindset of "things happen to other people", but that is not always the case. Take a moment to think and consider whether, should something happen and you are not able work, you have enough financial security to get through and, if you have a family, whether they can be taken care of too. For most people, the answer would be no. Life insurance may seem like something that is unnecessary, but the reality of the situation is that it is quite the opposite.
There are various policies you can take out to protect yourself and your loved ones. The first of these is plain life insurance. This is probably the simplest kind of policy which pays out a lump sum upon your death. Within this bracket, there different length policies you can take out, from lifelong policies to one with a fixed term, for instance, 25 years. Level term insurance, also called "assurance", will pay out the same amount whenever you need to make a claim. Life insurance is also available for couples, paying out when the first party dies. As life expectancy rises, life insurance premiums have fallen dramatically, also thanks to increased competition within the insurance market. If you fall outside the "norm" however, for instance if you are overweight or smoke, you will increasingly be forced to pay higher premiums. To use an example from financial website find.co.uk, a 20 year level term policy with an assured payout of £100,000 will cost £8 each month for a 35 year old male non-smoker. A 35 year old male smoker, however, would have to pay £13.50 per month. The non-smoker would then be saving £64 every year, which amounts to nearly £1,300 over 20 years.
Another service which can help bereaved families financially is the Family Income Benefit. This is to help those who did not have life insurance and whose relatives will be greatly affected by the loss of income. Taking out Family Income Benefit insurance means any dependents will be paid a regular monthly or yearly amount. These policies are usually set term which means that if a policy is taken out for 15 years and the policyholder dies after 5, any dependents will receive an income for the remaining 10 years of the policy. The sum paid out by the policy can be used to cover living expenses, education costs and provides you and your family with peace of mind.
Critical illness insurance is similar to life insurance, except it pays out a lump sum in the event of a serious illness (not death). This type is insurance is tax free and will cover a range of illnesses. All companies that offer this type of insurance must provide cover for seven core illnesses, including multiple sclerosis, heart attacks and cancer. If you suffer an injury which leaves you permanently disabled, you would also be covered. There are certain things, however, that are not included in the policies available; these include self-inflicted injuries, HIV/AIDS and injuries caused by drug abuse.
The critical illness insurance market has come under fire in the last few years after figures emerged showing that one in four claims are rejected. According to a report released by the insurer Swiss Re, this news led to an 8% drop in the number of new policies activated in 2006. What proves controversial about this type of cover is that most insurers do not ask for medical records when a customer applies for a policy. If a claim is made, however, they may ask for medical records dating back up to ten years. One in five men and one in five women will suffer a serious illness at some point in their lives before retirement. Equally, people are twice as likely to suffer a serious illness than die before the age of sixty, so it might be worth considering this type of policy as an option.
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