Life insurance is a safety net. It is designed to provide financial support for your dependents or simply to give your loved ones a little extra money, when you pass away. There are multiple types of life insurance policy to choose from, depending on all kinds of factors, like how long you want the policy to last, how much you can afford to pay into the policy while you’re alive, and how much you want the policy to pay out – the sum assured.
But before you decide on which type of policy suits your circumstances, you first need to decide: is life insurance necessary for you?
Here are some of the reasons why you should take out a life insurance policy according to lifeinsuranceguideline.com:
You Have a Mortgage
Many lenders will actually make it a condition of your mortgage offer that you take out a life insurance policy. This is because they want to be certain that they will get their money back if you die. Rather than risk such a gigantic debt being passed on to your loved ones, why not get a life insurance policy to cover the cost of your mortgage.
Those who have death-in-service cover may think that they don’t need life insurance because of the current policy. This is a type of cover which means your employer will pay out a tax-free sum if you die while employed at the firm. However, the pay-out for this type of cover is normally much lower than the recommended life insurance cover, and it normally can’t be linked to a mortgage.
You Have Children
One of the most common reasons for taking out life insurance is to provide financial security for children. There are a variety of different types of policy to cover kids, depending on what you’d like to pay for. If your children are you, you may wish to opt for a policy that will provide monthly payments to your partner, similar to a salary, to supplement their income. Alternatively, you can set up lump sums to be released when your child reaches certain ages, for expensive life events like buying a car and going to university. Bear in mind when choosing life insurance cover that some policies won’t provide payments to a child until they turn 18, so it may be worth naming someone else as a beneficiary in their stead.
You’re The Breadwinner
You may think that you don’t need life insurance because you don’t have children and don’t have a mortgage. However, that doesn’t mean that others aren’t financially dependent on your earnings. This will be particularly true if your partner isn’t earning any money – maybe they decided to go back to university, or perhaps they’re ill and need some time to recover. In circumstances like these, a life insurance policy will give you the peace of mind that your partner can continue on their current path, with the peace of mind that you will continue to take care of the finances even if you’re not around.
It may be that your partner does indeed have a job, but the pay isn’t enough to cover the costs of your rent and all associated bills alone. If this is the case, taking out a life insurance policy with a cash sum pay-out may be a great way to help them settle all current debts while they take the time to find a most affordable place to live.
Your Current Cover Isn’t Enough
Perhaps you already have a form of life insurance from your employer or you have a joint policy with your partner. However, if your circumstances change, this will impact your life insurance. It may be that you have another child, or you move to a larger house and need to take out a bigger mortgage. Circumstances like these will affect the amount of money you want to be paid out if you die. But, if your insurance provider charges a premium for changes to your circumstance, it may actually be quite expensive to amend your cover. If this is the case, you can get a top-up life insurance policy, which will sit alongside your original policy and cover all of the extra financial obligations needed.
You Don’t Have Any Savings
Some people are good at saving money, while others are not. If you’re one of the latter, any remaining debts you have outstanding when you die (for example bills, rent, leased cars etc.) will need to be paid off. Unfortunately, the debt doesn’t go away when you die, it is passed on to your loved ones. For people who have savings, these can be utilised by your loved ones to cover any outstanding debts. However, people living paycheck to paycheck should consider taking out a life insurance policy to cover your financial commitments.
However, it may be that you don’t actually need life insurance. This could be because:
You’re Have No Dependents
If you’re single and don’t have any young children, there is probably no need to take out a life insurance policy. You might want to take out cover to give your loved ones a cash sum at the event of your death to cover the cost of your funeral, however it will probably be more cost effective to keep a savings account and set up a will so they can inherit the money when you pass away.
You’re More Worried About Long-Term Illness
Life insurance cover will only pay out in the event of your death. Therefore, if you’re more worried about having a long-term illness, you don’t want all of your finances to be tied up in your life insurance policy instead of being put towards looking after you during illness.
Your Partner is a High Earner
If your partner has a salary high enough for your family to live on, it may not be worth tying your finances up in a life insurance policy. If your income isn’t enough to support your family, you may want to suggest that your partner takes out cover instead!