Life Insurance – ensure the correct balance.

Very few people have sufficient assets to enable them to plough along through life, without making provision for their dependents to continue with their present standard of living when the principal earner is gone. However there are many who seem to have delusions of immortality and keep putting off doing anything about it because they aren’t intending to go just yet. Those who cannot afford life insurance are in a very unfortunate position, but those who can afford it but will not get around to doing anything about it are gambling on the future of their families or other dependents.

The loss of a parent or other relative is traumatic enough, but to find out when life goes on after the loss that financial problems are going to be a major factor in life for the foreseeable future, is adding to the grief. So what is to be done? Well, the first action should be to draw up a simple balance sheet – what are your assets and what do you owe.

On the assets side of the sheet you should first of all put down your ‘ready cash’ items. Always remembering to allow as far as possible for any potential changes, the first items should be investments which can be cashed in at short notice. Then methodically work your way through longer term investments, not forgetting such items as life cover provided as a benefit of your employment. You should make a note if applicable if loss of job would lose this cover.

Once the cash side is completed, you move on to material possessions – your house value can be included but bear in mind that your dependants will have to have somewhere to live, so the full value will not be available. The same factor applies to household contents – you are unlikely to be fondly remembered for long by family members who cannot sit down because they had to sell the furniture! A holiday home and contents is not a necessity and the full realisable value could be included, as could the value of a caravan, boat or even a saleable timeshare.

Finally, on the credit side, include valuables such as jewellery, cameras, electrical items etc. but don’t allow yourself to be fooled over the possible value. The vase which your favourite aunt left to you some years ago may be reputed to have a considerable value but don’t rely on hearsay. Get it valued and then write that value down by 25% or more – the valuer may have been more enthusiastic about it than a potential buyer would be.

Now move onto your liabilities, remembering to allow as far as possible for future changes, i.e. have you had a loan which will be paid up in the near future, thus releasing more cash; alternatively are you likely to take out a new loan which would then commit a proportion of your cash to repayments? Do you have commitments which would cease on your death, such as a health protection plan?

When the above is completed why not take the opportunity to do something else which you have probably been procrastinating about for many years – make a will. Now you know what your assets are, why not ensure that they go to the people for whom they are intended – intestacy is a sure fire way to create problems for your family when you depart this life, so why not deal with it now?

You are now in a position to do your sums and decide how much life cover you need to enable your family to live more or less as they do at present. You should be able to arrive at a figure which will be as adequate as you can make it and affordable, but not excessive to the point that paying for it becomes a serious burden.

You have arrived at the point where you are likely to need expert help in drawing up the most suitable policy for your needs, so why not take the easy route (after all your hard work) and browse the internet for a suitable broker.  Better still find 2 or 3 brokers and give yourself a choice when initial discussions have enabled you to form an opinion.

You can now settle into sorting out the fine detail, including the type of insurance which you require and the affordability of your intentions. There are a few different types of insurance available to you, each of which has a different cost. Term insurance for example, provides cover over a specified period, during which your death would trigger payment of the agreed sum; at the end of the term all cover ceases and a new policy would be taken out if required.

The type which historically was frequently employed for mortgage cover is the decreasing term policy, where the amount to be paid out gradually reduces by an agreed amount each year until the end of the term, when cover ceases. This type of policy is very much lower in cost due to the decreasing commitment, but don’t forget to allow something in the sum due for potential inflation.

See a broker, discuss your needs and rest assured that you have taken a major step for your family in reducing the trauma of your inevitable departure. At least it shouldn’t be financial worries that speed your end!