Life is full of surprises; having insurance is a way of minimising the financial impact on you, your family and your assets when the worst of these surprises comes along. Most people have insurances that protect their home, car, domestic appliances and even their income but fail to protect their most valuable asset – their own life. As a breadwinner, it is essential that you have insurance so that you or your loved ones are protected to some degree when serious sickness or premature death occurs. Such insurances are plentiful and can be relatively cheap, it’s a good idea to shop around to find the policies that suit you, your family and your specific circumstances best. Some insurances become more (or less) appropriate as life goes on, so you may find it worthwhile to seek expert advice before buying an insurance product.
When a breadwinner dies prematurely, and their life is insured, the lump sum that’s paid out can significantly reduce the financial impact on the surviving members of the family. Unfortunately, the general opinion is that a many of us don’t insure our lives. And many of those who do are under-insured, which is why it is important to take advice so that you know the amount of cover you should have, or aim to have. If you already have life insurance cover, it is always worthwhile reviewing your policy as your life changes to see if the amount or type of cover you have is sufficient or more than you need.
Two types of life insurance:
- Whole of life
- Term life
WHOLE OF LIFE INSURANCE
Whole of life policy
provides cover throughout until you die as long as the terms and conditions are adhered to and the premiums are paid. The person taking out the insurance pays a regular premium and in return, the insurance company pays out a sum of money when that person dies. Whole Life insurance is more expensive than Term life insurance because as well as the insurance cover, the policy will have an investment element that builds over time. The policyholder is then able to use the cash element of the policy for a variety of purposes such as paying the premium on retirement, spending it, or investing it for retirement purposes.
TERM LIFE INSURANCE
Term Life insurance is just that. It is an insurance product that is generally cheaper than Whole of life insurance because it does not have any cash element. The period of the cover is also specified at the beginning of the contact and should the policyholder still be alive at the end of the term of the contract, cover ceases and there will be no cash payment.
It is generally better to have some form of insurance than no insurance, so starting with term insurance is prudent.
When looking for an insurance product or assessing your life insurance needs, you need to consider the following:
Short term considerations
- Is the insurance company financially sound? You may need to take professional advice to establish that fact because there is no point paying premiums only for the company to fold and be unable to payout as and when you pass on.
- When money is tight, think of ‘buying term and investing the difference’.
- Your short term, medium to long term goals, your resources and your requirements are crucial considerations and critical to assessing if the cover is sufficient or not.
include any financial obligation that might arise within six months of the death of the policyholder. Examples of these include funeral expenses, credit card bills, mortgage repayments and utility bills. It is therefore essential that potential bills such these are included and covered in the sum assured
Medium to long term considerations
include providing a steady source of income for your family or other dependants or catering for other financial obligations like school, college or university fees. When considering your insurance it is wise to quantify your total financial resources such as the value of any pension, or any other investments you may have so that the amount of insurance cover provides no more and no less than what is actually required. Other types of ‘life’s’ insurances that you may wish to consider are: Health Insurance, Home Insurance (Buildings & Contents), Car Insurance, Long-term care insurance and Disability or Critical Cover Insurance.