Do I need life insurance

Do I need to get life insurance cover?

12 Aug, 2016

The purpose of life insurance cover is to protect the financial well-being of your dependants when you die. It essentially replaces the money you would have been earning so they are no worse off financially.

 

Is life insurance cover necessary?

The only question you need to consider when determining whether you need life insurance is: Does anyone depend upon your income for their financial well-being? If the answer is yes, then you need life insurance. Your unexpected death would be difficult enough for your dependants to deal with, without them having the added worry of how they’re going to survive financially.

 

How much life insurance cover should I get?

Different experts offer wildly varying advice when it comes to the amount of cover you need – it can be anything from three to twenty times your annual income.

You will need to take into account factors such as the number of people who rely on you financially, any debts you would have to pay off, and any ongoing expenses that would have to be paid from the insurance money.

Your insurance broker should be able to help you with your calculations, but life insurance calculation sites provide a good starting point for you to work from.

Remember that if your situation changes (e.g. if you have children), you may need to increase your level of cover.

Find out more about how to choose the right insurance policy in this article.

 

Term life insurance vs Cash value life insurance

Insurance companies may assign their own names to their different life insurance policies, but they all fall into two categories: term and cash value.

A term life insurance policy is what you would consider ‘normal’ insurance – you pay a premium and if you die within the period covered your dependants receive a payout.

A cash value life insurance policy gives you an insurance policy tied in with a savings or investment scheme (the idea being that if you don’t die within the coverage period, you still get a lump sum payment at the end of the term).

Generally, term insurance is a better option because the premiums are lower. If you want to invest some additional money, you’ll probably get a better rate of return by choosing an alternative investment product.

Some agents may try to sell you a cash value policy when you are young by telling you that you won’t be able to get a term policy when you’re older, but this simply isn’t true.

 

In short:

  • You should seriously consider taking out life insurance cover if a family member or anyone else is dependent on your income
  • The amount of cover needed varies from one situation to another, but online calculators can help you work out the level of cover suitable for you
  • Review your policy from time to time to make sure the level of cover is sufficient – especially if your situation changes
  • Term insurance provides standard insurance cover where as a cash value policy has a savings element as well
  • It’s usually best to opt for a term policy and invest additional money elsewhere
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