Published on 9th June 2015
No matter what anyone tells you, you don’t need life insurance. Like the old saying goes “you can’t take it with you”. Once you’re dead, money stops being a concern. Of course, your having life cover could make a world of difference to your loved ones. In the short term, it could help prevent their grief being compounded by financial anxiety. Over the longer term, it could allow them to enjoy a better quality of life than they would have managed without it. Let’s look at some basic questions about life insurance.
There are basically two reasons for taking out life insurance. One is because you have to and the other is because you want to. An example of the former is being required to take out life insurance as a condition of a loan, such as a mortgage. An example of the latter is family protection. In other words, making sure that the people who love and depend on you can manage financially in the event of your death. When looking at this issue, there is one very important question you need to be able to answer.
You are unique and irreplaceable. There is, however, a fair chance that a lot of what you do every day is far from unique. This is just as well because there is also a fair chance that somebody else will need to do it if you die leaving family or other dependants behind. It’s entirely possible that at least some of these people will need to be paid for their services. Therefore even if you are purely a home-maker rather than a breadwinner, your life does have a financial value. If you also bring in an income then it is highly advisable to look at the impact of losing this.
Well done for making a will. It would, however, still be a good idea to look at life insurance. First of all, it will give you an opportunity to check whether your savings would be enough to protect your family in the event of your death. Secondly life insurance payouts can be excluded from probate. If you have your policy written in trust, the proceeds can be paid directly to your beneficiaries rather than go to your estate. In very simple terms this means that your intended beneficiaries can receive the insurance funds in a relatively short time-scale – possibly long before the process of probate is completed. This can go a long way towards easing the financial impact of your death.
There are two ways to look at this issue. One way is to review your financial plan thoroughly to see if there are any changes you can make so that you can afford the premiums. The other is to see what you can do to get lower insurance premiums, which you can afford.
In very simple terms, premiums are priced based on the statistical likelihood of you dying within the term of the policy. While there’s nothing you can do about your age, you can control your lifestyle. For example, if you’re a smoker, giving up will both free up cash and make you more attractive to life insurance companies.
It’s also worth looking at what different types of cover are available. This may help you to get the cover you actually need at a price you can afford. For example, if your main goal is to pay off a mortgage, then it may be more affordable to take out a policy which decreases in value over its term, rather than one which provides the same level of cover from beginning to end.