The importance of life insurance
Written by Carl Turner on August 11, 2014.
Clichéd as it is, there is only one certainty in this life and that is that we will all die. Have you considered the financial implications if you were to die today? Do you know how much money your loved ones would receive and are you happy that it would be enough for them to maintain the lifestyle which they are accustomed to and save them falling on hard times without you?
Each passing birthday increases the premium for those applying for life insurance for the first time. For this reason, I always advise my clients not to procrastinate when setting up life insurance but to apply while you are young, fit and healthy in order to qualify for the best possible rates.
To give you an example of the savings to be made by starting early, a healthy individual who takes out life insurance worth $500,000 at the age of 35 will pay a guaranteed premium (depending on underwriting) of around $85 per month for the next 25 years. For someone who is 45, the same level of cover will cost over $135 per month, and that doubles to around $270 for someone who is 55.
The purpose of life insurance is to protect those dependent on you by replacing your lost income should you die and to ensure that your loved ones are not left with any of your outstanding debts. Life insurance payouts will bridge the gap between their financial requirements and the revenue available to them from other sources in order to maintain their standard of living.
The amount of cover you should buy will depend on how many dependents you would leave behind, usually your partner and children and the standard of living you wish to safeguard for them. A professional financial advisor can help you work out their requirements by calculating the expenses your family will face over the next 15-20 years and taking into account debts such as mortgages as well as the potential inheritance tax bill which they would face if you were to pass away.
Obviously over the course of the years your life insurance needs will change along with your personal situation. If you are young, single and largely responsibility free, your needs will be minimal but as you progress up the career ladder, purchase a property, make improvements to your home, get married and have children, your life insurance requirements will start to increase and will necessitate a thorough review of your needs to protect yourself, your partner and your family.
Extra life insurance should be purchased for all additional debts acquired (for example a loan you take out to pay for your child’s university education) and as your family expands. Couples with familes all too often neglect to take into account the value of a stay-at-home partner. Imagine if you had to pay for all the services that person provides – from cleaning and cooking to childcare. Your life insurance should reflect the unpaid services of that person.
Of course, any unexpected death is devastating for those left behind. Whilst you can never eliminate the possibility of that happening, you can minimise the financial impact of such a life changing event by ensuring that you have a solid life insurance policy in place that will safeguard your nearest and dearest against financial hardship. If you would like a no-obligation review of your requirements I would be happy to discuss your situation with you.