Financial Assets, Financial Liabilities & Life Insurance

Article published on 27th May 2008

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For most homeowners in the UK the biggest and/or most persistent debt tends to be mortgage repayments - many have more than one mortgage out on their homes in order to meet other debts. With rates rising along with the credit crunch you want to be certain that should you pass away suddenly you don't lumber your surviving loved ones with mortgage debts they could not meet by themselves.

If you are lucky enough (or have worked hard enough!) to earn a significant increase to your salary, remember that with an increased income standard of living tends to rise as well, so it's worth keeping your life insurance on a par with your new standard of living. So if you move to a larger property, what about increasing your life insurance cover to meet the higher mortgage you may have to be paying? Or if you've put your children into a private school, perhaps you should consider provision for the continued paying of their fees should you die unexpectedly.

You may be fortunate enough to have a 'death in service' package as part of your contract with your employer that provides your family with four times your annual salary (or whatever) in a lump sum something happens to you, but if you should die young for whatever reason, in itself it may not be enough to provide for your family until your children are able to support themselves. Even if a lump sum of £96,000 (4 times the average income in the UK) seems like a lot now, would it really be enough to help your spouse pay the mortgage as well as all other monthly expenses and the general costs of child-rearing? This is particularly relevant when you consider that death duties and other unforeseen expenses (such as arranging a funeral) will also come out of this sum.

Also remember that arrangements such as these cannot be altered along with your circumstances. So where the amount offered might be more than enough to cover costs if you leave behind a spouse only, it may not be nearly enough if you start to have children. Similarly, you can't take a 'death in service' deal with you when you leave service, as it were. If you decide to leave your job or are made redundant for whatever reason, your cover is gone - a problem that doesn't arise with life insurance.

However, if you are confident that you will stay in your job and that your job will provide a reasonable sum should you die, perhaps consider investing in a lower life insurance that, in conjunction with your 'death in service' arrangement will be more than enough to cover expenses left to your loved ones, while having the added benefit of cheaper premiums to pay.

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