Can I Afford my Life Assurance Premium?

Choosing a life assurance policy represents a very important financial obligation. It is very important to budget appropriately for your life assurance because if you have to default on your payments you may be driven into a policy lapse whereby your policy ceases to exist and all your payments prove to be worthless. Therefore, before committing to life assurance payments you need to calculate whether or not you can afford them.

The best way to do this is to make a list of all your monthly incomings and outgoings and identify how much you can afford to spare for your whole of life or level term life assurance premiums. It is a good idea never to let your budget get too tight if you can help it because you want be able to cope if emergency situations suddenly arise which demand greater sums of money than you expected. The consequences of not being able to meet your regular life assurance premiums can be severe and you may lose your policy if you do not choose wisely.

Types of Life Assurance

The cheapest form of life assurance is a level term. This means that your dependents will receive a lump sum if you die within a fixed amount of time, such as fifteen years. The shorter the term of the policy, the cheaper your premiums will be as your insurer will consider you less likely to die before the fixed term is up. Of course, if you do not die within the specified term, you and your dependents will lose the sum of money insured.

In contrast, the most expensive form of life assurance is a whole of life policy. This kind of policy covers you until the day you die, so the insurance company will definitely have to pay out. Because the probability of a pay-out is absolute, the premiums for this kind of assurance are the most expensive. If you are on a budget, you may find that whole of life assurance is out of your price range.

However, there is a way to leave the possibility of whole of life assurance open for the future. There are types of term assurance which can be converted to whole of life policies at a later date, if that is your desire. Once your cheaper, level term policy has been converted to a whole of life agreement, your premiums should be increased to match the usual costs of whole of life cover. So, if you do not have much spare cash now, but are optimistic for the future, this type of convertible term assurance may be more applicable for you. There is no obligation to convert, so if your financial situation in the future is not as rosy as you currently predict, you can remain on a level term policy.

Another type of policy you may wish to investigate is increasing term assurance. With this type of policy, the sum payable upon your death, and also your premiums, rises every year by a fixed percentage. In this way, you can remain covered for the rising cost of living. Of course, this type of policy is only useful if you expect your financial situation to improve or at least stay the same. If you take out this kind of policy only to see your financial situation deteriorate, you may be in trouble.

Once you have chosen the type of assurance you want, you can start investigating the best quotes. There are many comparison sites on the internet which can help you pinpoint a good deal. So have a good idea of your budget and search accordingly.

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