Life insurance
The main function of life insurance is to offer financial protection
for your family or other dependents in the event of your early
death.
You pay a monthly premium, and the insurance
company invests the money. In the event of your death, the company
pays out an
agreed sum to the beneficiary named in the policy. With some
policies the money can be paid as a regular monthly income
rather
than a lump sum.
Some employers provide life assurance cover
for their employees. Ask your employer if this benefit is available
to you. If
you are lucky enough to have an employer who provides this
sort of
cover, think about whether it is adequate for your needs
or if you should arrange additional cover. Remember too that
if you
leave your employer, you will need to make your own arrangements
in the future. Life Insurance as a Way of Investing
Endowment policies are often used as a way of saving for
the long term, combining life insurance with a way of potentially
growing your money. They usually run over a fixed term, such as
10, 15 or
25
years. At the end of the term the company will pay out a lump
sum, based on the money made by investing your payments over
the life of the policy. If your policy has run for more than
10 years, this will normally be free of tax.
Pensions
Pensions are used to build
up a large lump sum in a similar way.
At the end of the policy term, the
lump sum paid out is used to provide
an income when you retire. Again, because
the money
is invested in the stock market, the
final value of the policy (and so the
amount of pension you will receive)
cannot be guaranteed.
If you die before you start taking
your pension, the value of your policy
when you die will usually be paid to
your spouse or dependants
To find out more about pensions, you could
use the Association of British Insurers’ online
pension calculator.
For more on saving and investing, see
the section on Risk
and return and for more on planning for the future, see
the section on Making
personal life choices.
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