Many people balk at the simple task of taking out term life insurance. For the young especially, filling out a term-insurance application form is a somber reminder of mortality and akin to a death wish.
But for someone with dependents, term life insurance should be an essential consideration. Moreover, for the average person in good health with a young family, term insurance is a very cheap option now. Until the mid 1970s it was only possible to insure against death by taking out a whole of life or endowment policy. As well as death cover, this type of policy included an investment component, the returns on which were generally quite unattractive in an inflationary environment.
From the mid 1970s life companies began to issue term policies which insured against death only. This substantially reduced the cost of obtaining death cover. Term life insurance, in fact, is one of the few products to have come down in price during the past few years. Competition in the field is intense, with the life companies issuing increasingly attractive policies to maintain their respective market shares.
Whole-of-life policies are still offered by some companies. It is generally cheaper to buy the individual components of these policies separately. As with all insurance products, there is a range of term insurance policies available and it is worthwhile consulting an independent insurance agent for unbiased advice on the policy most suitable to your particular needs.
The cost of term insurance, for someone with a good health record, depends on age and sex. Increasingly, non-smokers are also being offered significantly lower premiums.
It is important to ensure that, once your application has been accepted, you have the option of renewing the policy irrespective of changes in health. Norwich, for example, guarantees that a policy, once accepted, will be renewable annually to age 70 at the appropriate premium rate.
A further attractive feature of the Norwich policy is the fact that the policy-holder has the option of linking the amount insured to the consumer-price index. This ensures that the level of cover is maintained in real terms.
For how much should you insure life? As a general rule insurance agents suggest a reasonable figure is 10 times the annual expenditure needs of your dependents.
In the case of families it is important that both spouses are insured. It is all too often the case where a wife plays the role of child-rearing that the economic worth of her task is ignored. But professional child-minding and housekeeping are expensive services and there are strong arguments to suggest that the housewife's life should be insured for a similar value to that of her husband.