The lowest cost life assurance is Term Assurance. Term Assurance is life cover that protects you for a fixed period of time. The amount of cover you initially select can then either stay level throughout the term, could increase at a predetermined rate or you may wish to select cover that decreases.
You pay your premiums for the level of cover you require for the term you require and if you do not die within the term the policy finishes and the insurance company wins.
Decreasing term assurance is most commonly used where a liability is protected and which reduces, for example a repayment mortgage. Protecting a mortgage debt against is a relatively simple calculation, because you would normally only cover yourself for the amount that is owed. If you want to protect your family’s standard of living in case you die prematurely, the calculation can be more scientific.
A starting point to make the calculation is how much income would be required to maintain the family’s life should you die. If for example, this equates to £10,000 per annum, for 20 years, you could either protect for £200,000 (20x £10,000) to guarantee the income. The other option is for you to take a risk on investment returns and lifespan and insure for a lower amount. Once you have decided on how much income to protect, you then need to protect any capital requirements that you potentially have, for instance children’s higher education costs. You need to think, would they be able to afford higher education if you were not around?
Insurance is important, but the cost of potentially providing for the future has to be balanced against living today. Whenever doing some financial planning and deciding upon the correct level and most appropriate type of protection, it is sensible to seek independent financial advice and The Money Map are experts in all fields of protection for the family.