What is Life Insurance and Do I Need it?

Life insurance

There is a quote that goes along the lines of ‘when you die, your to-do list will still be there. But you won’t.’ The underlying message is that our to-do list isn’t as important as we think and we should live our lives each day with zest and meaning. In the literal sense though, the saying is true. Our to-do list will still be there when we die. Same goes for debts such as mortgages, credit cards and student loans. And while our to-do list probably won’t hold much significance after we’ve gone, unfortunately our debts linger and become the responsibility of someone else. This is part of what life insurance is all about.

What is life insurance?

Life insurance is an insurance policy that pays out a lump sum of money to a beneficiary (such as a spouse or child) either when the insured (the person’s whose life is being insured) passes away or after a set period of time. The idea is that this money will help those dependent on the deceased to cover the costs of funeral expenses, loss of income and any outstanding debts.

There are two main types of life insurance – term-life and permanent. Term-life is a set period of time and usually covers the insured for ten, twenty or thirty years before it comes to an end. This tends to be the less expensive option compared to the permanent policy. At the end of the set period, you can either let the policy expire or continue the insurance but pay a premium so high, that it’s better to let it lapse. Although this may seem you could end up paying a lot of insurance over the years for nothing, it does mean that a) you’ll had peace of mind for decades and b) if you get to the end of the set period without using it, then you’re still alive which is surely a good thing.

Permanent offers a lifetime coverage and can be broken down into two types – whole and universal. The main difference is that whole tends to offer an investment element (which is actually not required for the majority of people) whereas universal is the less expensive permanent life insurance and comes with much more flexibility concerning increasing premiums. Generally, the permanent life insurance, whether it’s whole or universal, tend to be more expensive than term-life.

How Much Does it Cost?

There is no rough average as it depends greatly on the life insurance company’s risk assessment. They will consider factors such as your overall health, your medical history, your family’s medical conditions, your lifestyle, whether you smoke, drink, use recreational drugs and many other factors. When getting your quote, it’s important to answer truthfully as any discrepancies could affect your payout in the event of a claim. You can get quotes online, although it’s best to get your quote with a qualified and experienced insurance agent who can walk you through the steps, explain the underwriting and clear up any doubts you have on the spot.

Do I Need Life Insurance?

If someone is dependent on you financially, you need life insurance. This can include a spouse, partner, a child and even a business.

In the event of an unexpected death, life insurance covers the consequent costs that the loss of life brings. This includes debts such as mortgages and credit credits as well as funeral costs. According to the Royal London National Funeral Cost Index Report 2017, the average cost of a traditional burial is £4,257 and the average cost of a cremation is £3,311. Life insurance relieves financial strain that  dependents could face when they are dealing with the loss of a close one.

If you are completely financially independent, have plenty of savings and no debts, are stably retired and don’t have anyone dependent on you, then you probably don’t need life insurance.

Isn’t Life Insurance Simply Putting a Monetary Value on My Life?

The short answer is no, it’s not. It may seem cold and almost inhumane to associated your death with a lump sum figure, but that misses the point of life insurance. Rather than reducing your life to a numerical value, it provides you with peace of mind knowing that your dependents won’t bear the financial burden of a loss of life. It’s a precaution should the unexpected or worse happen. It’s a financial safety net not for you but for the ones close to you.

Few of us like to think about death or dying, let alone talk about it. Yet life insurance isn’t all doom and gloom. While our to-do lists may still be there when we’ve gone, life insurance can make sure that at least your debts and financial matters will be taken care of.

If you have any other questions or doubts regarding life insurance, then feel free to get in touch with us – we’d love to hear from you! Either send us an email at gregpendleton@iamassociates.co.uk or send us a message through our ‘Contact Us’ page.

 

 

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