Dead or alive: what are you worth?

Life assurance is often overlooked. It is boring but indispensable, writes Stuart Langridge.

At the start of a new year it is customary for many to review their personal finances or set new goals. Having conducted any number of these reviews, I can verify that virtually all of us focus on making more money. But there is generally a good - if not overwhelming - case for instead protecting what we have.

For anyone with a mortgage, personal debts or financial dependents, the issue of life assurance should be of paramount importance. Simply, it helps to answer the question, "What happens to my loved ones if something happens to me?"

Unfortunately, this is a question which few of us wish to face and so life assurance is sold and not bought. If we do not discuss our finances with a professional, we are almost certainly not going to have adequate protection.

Of course, to answer any tricky question in personal finance, one must assess individual requirements. This means that there is no right or wrong amount of life cover. That said, almost everyone in society is under-insured when compared to their potential financial liabilities.

The life assurance cover provided by an employer is an excellent place to start. But only for a very small percentage of staff will it be the complete answer. These staff benefits are established within taxation regulations and the costing limitations of the company or organisation involved. They are not established with the intention of being the sole answer to every employee’s needs.

An individual would need to assess what the cover would be meant to provide for and the approximate costs. Clearly, this is not an easy task. To repay a mortgage, car loan, put children through school and provide for a basic standard of living mean that any family requires a very substantial amount of cover.

The amounts usually cost so much to provide that anyone of normal disposition would be stunned. This leads to a compromise between the amount of cover required and the amount that people are willing and able to spend on providing it.

Happily, the typical reader of European Voice is not a deep-sea diver, aerial erector, fireman or equally high-risk employee, which means that providing cover is not as costly as it might be. But the rates are calculated using life expectancy tables which go back decades.

This does provide a problem for expatriates.

A Belgian life assurer will know until what age they expect the average Belgian to live. Then additional factors such as gender, smoker status, occupation and so on will be included to provide an even more accurate forecast.

However, the Belgian life assurance industry does not know how long the average Swede, Spaniard, Italian or whoever may live for. In the same way, an Italian assurer will not know how long they expect an Italian to live in Belgium. This does pose a problem, since expatriates can fall through the cracks between national providers.

To a life assurer this causes uncertainty and the only way to deal with it is to charge a ‘premium’ - otherwise known as a loading - for covering the additional potential risk.

The only way for an individual or family to respond is by shopping around for cover from different providers. To make this task easier, find a financial adviser who is independent from any one life assurance company.

It is important to understand that life assurance is essentially a commodity product and one provider should offer almost identical terms to another. In fact, in any national market, the terms and conditions will be surprisingly standardised. Often the only real difference is in the price that they charge.

Just make sure that you get enough...

• Stuart Langridge holds UK qualifications in personal finance.

Life assurance is often overlooked. It is boring but indispensable, writes Stuart Langridge.