The value of life insurance cannot be overstated. Life insurance not only offers protection for your family and home in the event of your death but can also be used as an invaluable tool in your financial planning.
Some people may think of life insurance as just another expense. The question you need to consider is would someone in your life suffer economic hardship if you were to die?
If you’re married and have young children at home who depend on your income, you have a clear need for life insurance. If you were to die, the loss of your income could cause immediate financial hardship. Even if one spouse is a stay at home parent and doesn’t bring in a formal paycheck, his or her death means that the surviving spouse will have additional expenses such as child care, cooking, and housekeeping – all necessary services for running a household.
Just because you don’t have children or aren’t married, doesn’t necessarily mean that you don’t need life insurance. If your spouse or significant other depends on your income to keep the bills paid and to run the household together as a joint venture, then having the financial safety net of a life insurance policy is vital.
The loss of a loved one is an emotional and traumatic experience for any family. But not having enough money to meet immediate and ongoing living expenses, can make a very difficult situation even worse. Not only are the people you love grieving your loss, but they’ll now have added financial stresses to cope with. Depending on their current financial resources and ability to get back on their feet both emotionally and financially, your loved ones could be forced to move to a less expensive home or community, forego education and career plans, and cut back on their quality of life. They may be even forced to take out loans to pay for your funeral and burial costs, as well as any outstanding medical or tax bills.
If you’re wondering why life insurance is important, stop to consider the potentially devastating consequences of not having coverage to financially protect the people that you love.
Critical Illness and Total Permanent Disability cover are perhaps even more important. What would be the impact of being out of work due to illness? And what would you do if a car accident rendered you unable to physically do your job? Whilst no one likes to think it will happen to them, statistically, there is a fairly high chance something serious will happen to us all at some point.
What different types of life insurance policies are there and what are they used for?
There are two main types of life insurance policies, the first is called ‘Term’ insurance and the second is called ‘Whole of life’.
Term insurance covers you for a fixed term, for example, 20 years, after which point the policy expires. The whole of life typically covers you until death. It is possible to convert a term policy to a whole of life policy.
Term insurance is generally much cheaper, however, when the term is finished your cover stops and any premiums you paid over the term period are an irretrievable expense. A whole of life policy invests a portion of your premiums and you can accumulate accessible savings.
Term policies are typically used to ensure debt such as a mortgage or to cover a shortfall in your existing savings. A decreasing term policy is perfect for covering mortgage debt as it is cheap and can be set up so the value of the cover decreases in line with your mortgage debt.
A whole of life policy can be a great tax planning tool. Having a policy that will pay out enough to cover your inheritance tax bill can save your family a huge amount of stress. Many families will have to sell property to foot this bill, so having an insurance policy can prevent that from being necessary. It is also extremely easy to put an insurance policy into trust, most providers have this as an option when you take out the policy. This means the payout will fall outside your estate and not be liable for inheritance tax.
If you need life cover, get in touch with us to find out more about the options available.