If you have dependents – people who rely on you financially – then you should have life insurance. In fact, if you have dependents and don’t have life insurance, you are exposing them to grave financial risk. And who would want to do that? Life insurance tends not to feature on ‘to do’ lists because it makes us confront uncomfortable questions, such as what would happen to our loved ones if we were to die unexpectedly in the next few years. However, we all carry a deep responsibility to ensure those we leave behind at least have sufficient funds to carry on with life if we’re no longer around. That means putting plans in place to address unpleasant possibilities.
Types of life insurance
There are two main types of life insurance. The one most people need is ‘term’ insurance. This pays out if the policyholder dies within a stated period – the ‘term’.
The other type – ‘whole of life’ insurance – pays out on your death, whenever that occurs. This is more of an investment vehicle than a financial protection plan and is typically used for estate planning.
Dealing with debt
Term insurance pays out money that can be used to clear debts such as a mortgage, lifting a huge financial burden and enabling your loved ones to stay in the family home.
It can also provide for day-to-day living expenses – everything from groceries to utility bills, and from school and university fees to family holidays.
GET ENOUGH COVER
Buy sufficient insurance to take care of your family until the youngest is financially self-sufficient.
YOU BOTH NEED IT
If you’re in a couple, you both need cover, even if one of you stays at home. The proceeds can pay for services such as childcare and keeping up the house.
BUY SEPARATE POLICIES
Joint life insurance covers you both under one policy but separate policies are more flexible and provide greater protection, although they cost a bit more.
WORK COVER ISN’T ENOUGH
Many firms offer ‘death in service’ life insurance. However, once you’ve worked out how much cover you need, you’ll probably realise this isn’t enough and you’ll need a policy of your own.
THE SOONER THE BETTER
The older you are, the more expensive life insurance is, so bite the bullet and buy young.
PUT YOUR POLICY ‘IN TRUST’
Doing so places the proceeds outside your estate so it can be paid to your beneficiaries without any delay associated with probate. It also keeps the money from the clutches of the tax man.
Monitor your life insurance coverage to make sure it keeps pace with your circumstances. Events such as marriage, the birth of children and moving home might prompt you to increase the amount of insurance you have.
It is important to take professional advice before making any decision relating to your personal finances.