A Guide To Life Insurance - Short-term Protection, Is It A Good Idea ....

 

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Short-term Protection, Is It A Good Idea...

The factors determining the annual cost of a pure protection policy are the age at entry and the term of the contract, i.e. the number of years it is to run.

The younger you are when you take out such a policy, the cheaper a given sum assured will be.

For a 30-year-old man the premium rate on a 10-year assurance has to cover the low mortality and claims pattern of the early years and the rising mortality closer to age 40.

For the 40-year-old, the premium has to reflect not only the higher mortality at 40 compared with 30, but the necessity of accumulating sufficient funds to pay the higher proportion of claims in the years nearer to age 50.

Likewise, the longer the period for which the cover is to continue, the higher the premium will be because of the increase in mortality risk.

The whole-life policy, which is a permanent protection policy since the sum assured is payable on death whenever this occurs, operates on a different basis.

Here the company knows it will have to pay out the sum assured at some point, the only question being when.

With assurances for shorter periods, the question is whether any benefit at all will be paid under the policy.

So whereas in the former case assets are accumulated towards an inevitable event, and the policy therefore acquires a surrender value for the policyholder, in the latter case there is little or no accumulation since all the funds contributed by policyholders are used up in paying out to the dependants of those who die during the term of their policies.


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Read On: read next:for Term Assurance Continued


Mr Brown wants to provide financial security for his wife (who is not working) and his two young children.
He wants the cover to continue until the children have become independent, so wants a policy to run for 15 years.
The lump sum has to provide a reasonable income for them to supplement the modest State benefits (the widow's benefit plus child allowances) they would receive, and he reckons a sum of £220,000 would be needed. At his age of 33, this amount of cover over 15........ see: read next:for Term Assurance Continued


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