Effective Use Of Life Cover For Good Financial Planning

Eventually all of us come to the realisation that we need life cover, but we don't always know how much cover to get or what sort. In the next few paragraphs we will attempt to shed some light on the matter. By the end of the article, you should have a better idea of what cover you need to suit your particular financial and personal situation.

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 the first thing that you need to think about first and foremost is do you have any mortgages or loans that are currently uninsured? If you do then the need is simple how much is the loan or mortgage amount? Whatever that figure is that is the figure that you need to have insured against death in the first instance and if your budget allows critical illness cover is a must as a secondary requirement.

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.

It can be uncomfortable to consider the financial impact our death can have on our family, but it can be easily simplified. Let's say that you earn 30,000 per annum. If you die, your family is therefore going to be 30,000 worse off every year and will need alternative methods to provide this amount of money. So you will need to provide cover for this in the event of your death.

There are several ways to achieve this outcome. The policy can be arranged to pay out either monthly or annually for the amount required. So a policy that pays out 30,000 per annum would be an option for a family that is going to be 30,000 worse off every year in the event of your death and loss of your salary.

Another way to approach this situation, although it should be said that is slightly more complex, is to enquire about Lump sum death benefit. This policy pays out a one off amount in the event of death. It is now common knowledge that this amount can then be invested to provide an income in lieu of salary. The idea is to take out a policy that yields significantly more than your salary that is, say 25000. The benchmark is around 10 times your income or a lump sum equating to 250000.

In other words, in the event of your death, the policy would yield an amount of 250000 to your family or dependants which could then be invested by them in order to generate a benefit of 25000 per year, covering the loss of salary incurred by them due to your demise.

To conclude, it is fair to say that almost all of us need some sort of life insurance cover. By working out how much you need, what the insurance cover will be needed for and deciding how you want the insurance to pay out, the rest becomes simple. Nevertheless, a good life insurance provider will be able to work all of the complicated parts out for you. It is their daily job, and so be sure to make good use of their knowledge and expertise in helping you find the right insurance solution for you.