Selecting life insurance for the family

QUESTION: My two children are now reaching secondary school age and I am considering a life insurance policy to protect their future. I am 37 years old, and my wife is 32. There are many companies out there offering products, and I really have no idea where to start. Can you help?

ANSWER: Buying life insurance can often feel quite daunting and even morbid, but a policy which ensures that your financial obligations are met in the event of your death is one of the most important investments you can make.

As you have dependents, it is important that you find the right life insurance policy as quickly as possible to provide you, and the rest of your family, valuable peace of mind.

The first decision you need to make is how much insurance cover you need to ensure that your family could continue with their current lifestyle. Speak with an independent financial adviser, who will spend time carrying out a complete analysis of your personal and specific needs. Your adviser will then provide independent advice on the products which best suit your requirements.

You need to calculate how much your family would require as a regular income as well as a one-off cash sum to cover immediate expenses and possibly cover any debts that you may have.

The policy you choose should cover the payments to match the lifestyle your family currently enjoy.

It is also possible to set the term of the life insurance policy and it may be wise to cover the period until all of your children begin to become financially independent, or until your spouse retires.

There is a wide variety of life insurance packages available on the market which makes it quite daunting for someone looking at cover for the first time. Your financial adviser will be able to help narrow down your search to find a product which best suits your individual needs.

As you are at a relatively young age, you could look at a term insurance which covers you for a specific period of time in the case of premature death. After that pre-agreed period, you can drop the policy or pay annually increasing premiums to continue the coverage.

These policies are less expensive than other alternatives, although they only pay a death benefit rather than accumulating a cash reserve.

The more traditional form is a whole life insurance policy. The premiums remain the same over the period of the policy, which stays in effect until your death, sometimes even after you have paid all of the premiums. Whole life policies also build up a cash reserve over the life of the policy.

There are also a couple of other types of life insurance, including universal life insurance and variable life insurance. Ask your independent financial adviser for more information on these.

While there has been much discussion among Muslim scholars as to how life insurance can be accepted in the Islamic religion, there are now many Sharia-compliant products available on the market.

- William Hewitt is a Chartered Financial Planner and District Manager at Nexus, a financial adviser.

You can find more advice at www.nexusadvice.com