If you are confused about life insurance, then you’re not alone. It can be a baffling subject to get your head around, but an important one nonetheless. In this short article, we’re going to look at the three main reasons why you will probably need life insurance at some point in the future, and which kinds of life insurance you might want to look at.
So, what is life insurance? There are many different types of life insurance policies, but at their most basic, life insurance policies all offer a payout (the amount of which varies depending on what type of policy you take out and the amount of coverage you insure) that is paid out at the time of your death to named beneficiaries of your choosing, in exchange for regular premiums that you pay in order to remain insured.
One of the best ways to look at life insurance is to think about the times in your life when you should, at the very least, be thinking about taking out a life insurance policy.
Leaving School or University
When you leave school or university, you will almost certainly be considered independent from a legal and financial standpoint. This means that, in general, even if you were included in any insurance policies your parents had, you probably won’t be covered by them anymore. You may well be thinking that it doesn’t matter as you don’t have any responsibilities right now. It’s not like you have any dependents or anyone who relies on you, who could be financially disadvantaged if you die. And in a way, you’re right.
However, even without dependents or responsibilities, the sad reality is that death comes with a price. So, whilst life insurance at this time of your life may be considered an optional extra, it is still worth giving serious consideration to.
Did you know that the average cost of a funeral in the UK in 2018 was just under £4,000? Usually, this financial burden falls onto your closest family members or partner, which can put an additional, serious strain on them at a time of already great suffering. Getting a small life insurance policy, just to cover the cost of being buried, is a good way of protecting your family from this cost, should the worst happen.
It’s also a great way of starting to think about your future financial obligations and responsibilities. A life insurance policy for £4,000 is not going to break the bank, and taking out a policy when you are young is a great way of keeping premiums to a mininmum. And it will also get you into the habit of paying a certain amount of money each month for the essential things in life.
Getting a Mortgage
The next big moment in your life will probably be when you get a mortgage. For most people this will be when you have met someone you want to live with long-term, and you wish to buy a place together that you can call home.
Although there are no laws in the UK saying you must get a life insurance policy when you get a mortgage, this is a very important time to get life insurance. That’s because, if one of you dies early and you both have life insurance, then at least the mortgage is paid for. That, at a time of considerable grief and suffering will be a welcome relief.
Your cheapest option here may be a joint policy. That way, you are both covered if one of you dies. Additionally, presuming you and your partner are reasonably young and fit, the policy will not cost a fortune.
However, it’s worth remembering that with a joint life insurance policy, if one of you dies, the policy will be terminated and will no longer cover the other. If there are no children, that’s not such a problem.. If you have children, however, you may want to consider a joint policy for the mortgage and two separate policies for other necessities, such as funeral costs.
Starting a Family
Finally, the last and probably most important event in anyone’s life is the moment they start a family. The moment you see your little bundle of joy for the first time and realise that they’re relying on you for everything in the foreseeable future, you’ll not be asking what the point of life insurance is then.
To get a good, comprehensive policy that will cover the cost of everything you need it to, and truly protect your family from financial hardship in the event that you die, you are going to have to work out the cost of everything you want to cover.
For example, if one of you is at home and the other works full-time, how much would it cost to replace the person who is no longer there? Or, if the main breadwinner dies, how much money would you need to replace their income? Obviously, you’d include earnings but what else do they do and how much would you have to pay someone else to do those things? You will find that everything adds up to a fair amount of money.
Now do the same for the parent staying at home. At the moment, you’re probably thinking that all the different chores and tasks your partner does at home have no real value. However, ask yourself how much you would have to pay to get someone else to do them and you’ll be shocked at the amount. Next, there are things like education fees and childcare costs. Would you like your children and partner to be able to have a holiday once in a while. These are all questions you need to ask, and answers that need to be factored into your calculations for cover.
Wrapping Everything Up
There are many other ways that life insurance is important, and other reasons for taking out a policy, but these three are possibly the most important reasons for having it. Always ensure that the important people in your household have policies. At least in that way, if you die, the worst part will not be a lack of money to settle the mortgage or pay for the necessities of life.