Why Do You Need Life Insurance?

Having life insurance is not a thing that many young and single people consider, but when you’re older, own a house and have a family, then there’s is a clear motive to have it. It’s not a legal requirement to have life insurance in the same way as you have to have car insurance if you own a car, but the benefits of it are clear. Life insurance is typically taken out to offer valuable financial 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 depend on your insured sum and earnings.

According to the Fair Investment Company, the British life insurance industry shrank to almost half the size of the pensions industry last year and according to the Association of British Insurers, less than 50% of UK households hold a life insurance policy. In their most recent newsletter about this issue, the Association of British Insurers found that 25% of people with mortgages had insufficient life insurance to cover their debt. The ratio of new life insurance policies to new mortgages was apparently 68% in 1994, but by 2004 this had dropped by half to 33%.

The Association of British Insurers  also state that one of the main reasons behind the increased gap between mortgages and insurance is the emergence of people remortgaging their property to take advantage of equity release through a rise in value, without insuring their borrowing. In their report it was stated that around 63% of new mortgage loans were remortgages or further advances, compared to 34% in 1994. Egg  reported at around the same time, that three out of four of these new loan homeowners had no intention of insuring this additional debt.

This is particularly worrying if couples are remortgaging their property later in life - towards retirement, given that should anything happen to the breadwinner, the partner would be left with significant debts without the capability of paying the loan back. Reasons for the downward trend in life insurance take-up include: Relaxation in lending policy - increased competition in the mortgages market means that lenders are not forcing life insurance policies on their customers. High house prices have stretched homebuyers, in particular first time home-buyers, to the extent that the additional costs of a life insurance policy are deemed too expensive. There are more households with no dependents If you're interested in researching a life insurance policy, make sure you shop around. UK websites such as Moneynet  provide life insurance and life assurance information guides, as well as providing price comparison research for the different products.

Because of the various factors listed above, people have also become less familiar with the term life insurance and without the awareness there is little recognition of the importance of this type of insurance. However as speculation increases that UK households are not coping with their debt, so should the awareness of life insurance as an essential product in the personal finance portfolio. Take a look at ASDA Finance for more on home insurance  or if you want to consider getting a policy.