A Guide To Life Insurance - Term Assurance Continued ....

 

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Term Assurance Continued...

Clearly if the wife is also contributing to earnings this must be taken into account.

Here each partner should ideally be insured for a sum sufficient to produce at least the equivalent of their net earnings, since apart from the regular outgoings that will need to be covered, there will also be extra costs of domestic help with young children.

As we shall see, there are policies more suitable for this purpose than level term by itself.

Level term assurance may be useful in many other circumstances, however.

Covering personal debts is one example. Today, many loan agreements such as personal loans and hire-purchase contracts contain automatic life insurance since the prospect of claiming a debt from a debtor's dependants is not relished even by the most stony-hearted moneylender.

In some cases it may not be included, however, and it is always worth checking this when arranging such loans. Other loans raised for personal businesses are unlikely to be protected in this way, and here term assurance can be a very sensible precaution.


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Mr Bain raises a £200,000 loan from a bank on the security of certain assets of his own wholesaling business.
The bank advises him to take out life insurance cover for the term of the loan, which is five years. So Mr Bain, aged 40 and in good health, takes out a five-year term assurance for £200,000 which costs him £224 a year before tax relief.
Term assurance may also be used to ensure that funds are available to pay capital transfer tax arising on death.
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