Life Insurance - Wise Investment In Personal Finance Or
By Rachel Lane, Fri Dec 9th
Life is typically taken out to offer valuablefinancial protection for your family in the event of your death,upon which a payment is made to your financial beneficiaries,heirs or family members. The extent of this payment will dependon your insured sum and earnings. Life and lifeassurance may be interlinked in advertisements, though bear inmind the two policies are different. Life assurance is a form offinancial protection which is also an investment, as you shouldalways get a pay-out at the end of the term of the policy. Lifeinsurance on the other hand is simply financial protection foryour family, avoiding the issue of debt in the event of yourdeath.
According to an article by the Fair Investment Company, theBritish life industry shrank to almost half the sizeof the pensions industry last year and according to theAssociation of British Insurers, less than 50% of UK householdshold a life policy.
In their most recent newsletter about this issue, theAssociation of British Insurers found that 25% of mortgageholders had insufficient life to cover their debt. Theratio of new life policies to new mortgage loans wasapparently 68% in 1994, but by 2004 this had dropped by half to33%.
The absence of mortgage life coverage poses a serious risk forthe dependants of homeowners. If banks were to embark on widescale repossessions as a result of this absence of lifeinsurance, this would impose a risk on their loan books andreputations. The Association of British Insurers also state thatone of the main reasons behind the increased gap betweenmortgage loans and is the emergence of peopleremortgaging their property to take advantage of equity releasethrough a rise in value, without insuring their borrowing. Intheir report it was stated that around 63% of new mortgage loanswere remortgages or further advances, compared to 34% in 1994.Egg reported at around the same time, that three out of four ofthese new loan homeowners had no intention of insuring thisadditional debt. This is particularly worrying if couples areremortgaging their property later in life – towards retirement,given that should anything happen to the breadwinner, thepartner would be left with significant debts without thecapability of paying the loan back.
Reasons for the downward trend in life take-up include:
* Relaxation in lending policy – increased competition in themortgage market means that lenders are not forcing lifeinsurance policies on their customers
* High house prices have stretched homebuyers, in particularfirst time home-buyers, in terms of their mortgage repayments,that the additional costs of a life policy are deemedtoo expensive
* There are more households with no dependents
If you’re interested in researching a life policy,make sure you shop around. UK websites such as http://www.moneynet.co.ukprovide life and life assurance information
guides, aswell as providing price comparison research for the differentproducts. In the states, the website LowerMyBills.com alsooffers a similar service.
Because of the various factors listed above, people have alsobecome less familiar with the term life and withoutthe awareness there is little recognition of the importance ofthis type of insurance. However as speculation increases that UKhouseholds are not coping with their debt, so should theawareness of life as an essential product in thepersonal finance portfolio.
About the author:Rachel writes for the personal finance blog Cashzilla: http://www.cashzilla.co.ukRachel is a disillusioned, disaffected and broke graduate,exploiting new media for financial therapy. ;-) E-mail:rachel@positiveinterest.com - Phone: 0131 561 2251
