Life Insurance - Wise Investment In Personal Finance Or
Excessive Caution?
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. Life insurance and life
assurance may be interlinked in advertisements, though bear in
mind the two policies are different. Life assurance is a form of
financial protection which is also an investment, as you should
always get a pay-out at the end of the term of the policy. Life
insurance on the other hand is simply financial protection for
your family, avoiding the issue of debt in the event of your
death.
According to an article by 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 mortgage
holders had insufficient life insurance to cover their debt. The
ratio of new life insurance policies to new mortgage loans was
apparently 68% in 1994, but by 2004 this had dropped by half to
33%.
The absence of mortgage life coverage poses a serious risk for
the dependants of homeowners. If banks were to embark on wide
scale repossessions as a result of this absence of life
insurance, this would impose a risk on their loan books and
reputations. The Association of British Insurers also state that
one of the main reasons behind the increased gap between
mortgage loans 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