Life insurance – terrorised into buying?
By: Michael Challiner
Life insurance is a useful investment to have in your portfolio. It can give you peace of mind, with the knowledge that your family have been provided for in the event of your death. Alternatively it may provide you with a nest egg if you have chosen an endowment mortgage and then lived through to the end of the term.
How much thought have you given to it in recent years? Did the events of September 11th 2001 tend to focus your attention on your own mortality? They certainly had that effect on a number of people as there was a small rise in the number of new policies taken out in the following year.
In the UK the tube and bus bombs of 7th July 2005 had a more marked effect. People living in or commuting to London were suddenly made aware of the dangers around them and this would be reinforced by travel in a crowded tube train or even on a bus. Then there were the details and photographs of some of the victims in the papers, with the possibility of a name or a face being recognised as a neighbour, a work colleague or just a fellow traveller.
Mortality became a fact instead of a distant and little regarded enemy, and suddenly protection of family was thrust into the forefront of conscious thought. The inevitable result was for insurance to assume a greater importance, and the Association of British Insurers (ABI) reported a trend for increasing numbers to be taking out life insurance. The increase in value of life insurance to £1 billion in 2005 is judged by the ABI to be a likely result of the terrorist’s actions. A similar increase in interest was recorded in the USA following the September 11th terrorist attacks.
It is unfortunate that it takes a terrorist attack to bring home to us the need to protect our families against the unexpected loss of a parent or any other family member who helps to provide our financial stability. However, that is the way of the world and these things are easily overlooked in the daily work, eat, sleep cycle. The old saying that ‘it’s an old wind which blows nobody any good’ is tested in this case, and there can be few winds more ill than those which blow in on the back of terrorist violence.
Fortunately life insurance is still applicable in the event of deaths caused by terrorism; those victims of the London tube and bus bombings who had life cover would at least have provided some financial security for those they left behind. The ABI warn however that careful examination of the terms of any life policy is advisable because there can be variations. They quote group life insurance policies as an example, because the accumulated risks which can occur in a single incident may be specifically excluded.
As mentioned at the beginning of this article, it is worth considering endowment policies as these will pay out, not only in the event of the death of the insured during the years of its currency , but also if the insured person survives to the end of the agreed term. In the latter case the total paid on a unit linked endowment would be the total contributions paid plus the value of the investment interest earned over the period of the policy. If the policy was taken out as ‘with profits’, the payout would be the sum insured plus the total of bonuses issued during its term, plus a terminal bonus. Historically terminal bonuses have proved to be very valuable, but there can be no guarantee of the level of investment interest or bonuses, depending as they do on the success of the company’s investment or business endeavours.
If you intend to follow the path of life cover, contact a broker and discuss your needs. You should however enter into the agreement with the intention of following it through to completion. Although life policies tend to have a value after the initial years, they should at that point be entering into their period of best growth. This may look tempting as an option to surrender, but a little patience will produce a markedly better return for yourself or for your family.