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Personal Life Assurance Protection

On a typical day in the United Kingdom more than 1,700 people die.  Many of these people die prematurely, and with insufficient life assurance cover.  Your death could leave your family financially vulnerable.  Nothing can replace you, but money provided at the right time will ensure that your family will be financially secure without you.

·      Have you have enough life assurance to provide your family with a mortgage free home?

·      Have you have enough life assurance for your children to attend private college or university?

·      Have you have enough life assurance to replace your income for your family before you reach retirement?

·      Have you enough life assurance to replace your retirement income for the benefit of your spouse?

In financial planning, the risk of premature death must be given a high priority.  If a family head dies prematurely, the surviving family members can experience considerable financial insecurity.  Could your dependant survive on the currently levels of life insure that you have?  Often there are many financial factors to be considered and these are dependent upon your circumstances.

Premature death is the death of a family head with outstanding unfulfilled financial obligation, such as dependents to support, children to educate, or a mortgage to pay off and can include the cost to purchase a home for the family if a property has not yet been purchased. Premature death can cause serious financial problems for the surviving family members because their share of the deceased breadwinner's earnings is lost forever.  Surviving family members will be exposed to great financial insecurity if replacement income from other sources, or accumulated financial assets available to the family are inadequate.

Single-Parent Families
The number of single parent families with children under 18 has increased sharply in recent years because of the number of children born outside of marriage, divorce, legal separation, and death.  Premature death of a family head in a single-parent family can cause great financial insecurity for the surviving children.  The need for large amounts of life assurance on the family head is great. However many expatriates have some form of life assurance protection included as part of their expatriate package, while working for the Company.  This valuable life assurance is lost when expatriates repatriate or change employment that does not provide life assurance protection as part of their package.  Increasing is the number of expatriates' employed under a contract, which excludes life assurance protection.
Two-Income Earners
Families in which both spouse work have largely replaced the traditional family in which only one spouse works, although it is not common for both spouses to work in the expatriate environment.  In two-income families with children, the death of one income earner can cause considerable financial insecurity for the surviving family members since both incomes are normally needed to maintain the family's standard of living.  The need for life assurance is great since life assurance can replace the lost earning, and the family can maintain its previous standard of living.

Traditional Families
Traditional families are families in which only one parent is in the labor force, and the other parent remains at home to take care of dependent children.  Premature death can cause great financial insecurity in families with children in which only one parent works outside the home.  The need for life assurance on family heads in this group is great.  If the working spouse dies with insufficient amount of life assurance, the family may have to adjust their standard of living downwards.

How Much Life Insurance Do You Need?
If you need life assurance, the next step is to determine the correct amount of assurance to own.  Most families own an insufficient amount of life assurance.  In 1995, the average amount of life assurance in force per household in the United States was only US$124,100.  Representing about 27 months of total disposable income per household.  The correct amount of life insurance to own, however, is an individual matter since family needs and goals vary widely.
The Needs Approach
The needs approach is widely used to determine the amount of life insurance to own. Under the needs approach*, the financial need that must be met after the family head dies is determined.  The amount of existing life insurance and financial assets is then subtracted from the total amount needed to determine the amount of new life insurance, if any, to purchase. The most important family needs are listed below:
*Needs Approach: An approach to determine how much life insurance to purchase in which the financial needs that must be met after the family head dies are determined and, after considering other sources of income and financial assets, converted into specific amounts of life insurance.
  • Estate Clearance Fund:  An estate clearance fund or cleanup fund is immediately needed when the family head dies. Immediate cash is needed for expenses; uninsured medical bills; installment debts; estate administration expenses; and estate, inheritance, and income taxes.
  • Income during the readjustment period: The readjustment period is a one- or two-year period following the breadwinner’s death. During this period, the family should receive approximately the same amount of income received while the family head was alive. The purpose of the readjustment period is to give the family time to adjust its living standard to a different level. 
  • Income During the Dependency Period:  The Dependency period follows the readjustment period; it is the period until the youngest child reaches age 18. The family should receive income during this period so that the surviving spouse can remain at home, if necessary, to care for the children.  The income needed during the dependency period is substantially reduced if the surviving spouse is already in the labor force and plans to continue working.
  • Life income to the surviving Spouse: Another important need is to provide life income to the surviving spouse, especially if he or she is older and has been out of the labor force for many years. There are two income periods to consider: (1) income during the blackout period, and (2) income to supplement social security benefits after the blackout period. The blackout period refers to the period from the time that social securities survivor benefits terminate to the time they are resumed.  Social security benefits to a surviving spouse terminate when the youngest child reaches age 16 and start again at age 60.
  • If a surviving spouse has a career and is already in the labor force, the need for life income is greatly reduced or eliminated. However, this is not true of an older spouse under age 60 who has been out of the labor force for years, and for whom social security survivor benefits have temporarily terminated. The need for income during the blackout period is especially important for this group.
  • Special Needs: Families should also consider certain special needs, including a mortgage redemption fund, an educational fund, and an emergency fund.
  1. Mortgage Redemption Fund. It is often desirable to provide the family with a mortgage free home.  The amount of monthly income needed by surviving family members is greatly reduced when  monthly mortgage payments or rent payments are not required. 
  2. Educational Fund. The family head may also wish to provide an educational fund for the children. If the children plan to attend a private college or university, the cost will be considerably higher than at a public institution.
  3. Emergency Fund. A family should also have an emergency fund. An unexpected event may occur that requires large amounts of cash, such as major dental work, home repairs or a new car.
  4. Retirement Needs: Since the family head may survive to retirement, a family should consider the need for adequate retirement income. Most retired workers are eligible for social security retirement benefits and may also be eligible for retirement benefits from an employer.  If retirement income from these sources is inadequate, you can obtain additional income from cash value life insurance, individual investments, a retirement annuity, or an individual retirement account.