A Guide To Life Insurance - Term Assurance Example 3 ....


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Term Assurance Example 3...

Mr and Mrs Smith are buying a house on a £200,000 mortgage.

At the same time they are considering their overall insurance needs.

They have two young children and Mrs Smith is not working. They decide that they need £220,000 of term cover in addition to covering the mortgage loan.

By effecting all the cover as level term over 20 years (the same term as their mortgage, which is on an older house) they are in fact buying cover increasing from £220,000 to £230,000 over the period, since the amount owed to the building society decreases every year.

This, they reckon, will help to compensate for the fall in the value of money over the period. The annual cost of the full level term (at age 30) would be about £255, compared with about £248 if £200,000 decreasing term and £220,000 level term were purchased.

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Level term assurance does suffer from the disadvantage that it provides lump sums, whereas the guarantee of financial security needed for a family is regular income.
Capital can of course be invested to generate income, but it is impossible to predict how much, and the decision of how to invest it may be difficult.
For these reasons life insurance companies have adapted term assurance to meet the need for income through policies usually referred to as family income benefit, or FIB........ see: click here for More Term Assurance Examples


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