Most people go through years of their adult life without ever thinking about life insurance. We all understand the burden of contemplating our lives ending; however, the alternative is worse. Going through life without any concrete plans on how your loved ones will be taken care of when you’re no longer on earth is a scarier thought.
Life insurance is tailored to shelter your loved ones and your dependents if you pass on. They make a deceased benefit pay-out to your registered grantees. With time, lifetime covers have expanded to offer options that allow you to generate money and duty-free assets. My advice would be to invest in life insurance while you’re still young, and it’s cheap, without waiting for calamities to befall you.
Before breaking down why life insurance is a worthwhile investment, here’s a video to get you acquainted.
What is Life Insurance?
More often than not, people only think about their financial affairs in terms of life and death when they have families. I’m here to tell you that the best decision you can make for yourself is to purchase life cover today. Investing in lifetime cover before starting a family or building your business means you’ll get a cheaper deal.
So how does it work? In correspondence with your premium payments, your insurer offers a lump-sum settlement ( a death benefit) to beneficiaries. These may be authorized people that will get the payout in the event of your passing. The yearly premiums you pay depend on the agreement you have with your insurer for the full “term” of your policy.
If you, as the primary beneficiary, die before the policy term (usually 20 years), then your family collects the indicated payout.
This payout helps cover funeral costs, debts, and property charges when you’re deceased. Investopedia sheds more light on how this works.
Understandably, before taking this big step, you’ll want to know all there is about life insurance. For starters, there are factors to consider that’ll help you assess your coverage needs.
The coverage you get will depend on:
- Your reasons for getting life insurance (assets accumulation, wealth protection, family cover e.t.c.)
- Where you are in life (married, in school, starting a company)
- Your age
Over the years, you’ll get peace of mind knowing that your dependents will be taken care of, even when you’re no longer around.
6 Important Reasons You Need Life Insurance
As I grew older and started my business, I realized I’d want to get married and have a family someday. All these steps required me to have a solid financial plan to make sure my short and long term plans would be fulfilled. Here’s a list that helped me make that insurance commitment:
1. You Never Know
Death is unpredictable. You could go to sleep and never wake up, scary as that sounds. Life insurance assists those you leave behind in covering due payments and mortgages in your absence. The duty-free payout helps them pay for school tuition as well.
So as your final gift to them, take measures to care for your family in the face of one of life’s tragedies.
2. To Leave An Inheritance
The gift of financial peace of mind while mourning your passing is an important one. Signing your family up as beneficiaries allows you to leave something for them, even if you have no other wealth. That way, your children’s financial needs in the future will be taken care of, and they can get a quality education.
3. To Pay Off Debts
Debts are a huge encumberment to handle, especially when clashing with the strain your absence will bring.
You don’t want to leave your family with debts to pay off, and that’s why life insurance is essential. Taking out life cover allows those you leave behind to settle any outstanding payments you may have. Things like mortgages and student loans will be paid off by your life cover.
4. You Have High-Risk Lifestyle
If you’re like me, then your chosen hobbies (or job) may expose you to more dangers than the average person. Taking life cover allows you to enjoy the thrills of life with the assurance that the next generation will be taken care of.
5. Burials Aren’t Cheap
Just because you’ve finished your race on earth doesn’t mean that you should leave the responsibility of your funeral to your family. In a challenging and emotionally stressful period of their life, this insurance finances the funeral so your family can mourn in peace.
6. You Have a Business.
Life Insurance doesn’t just cover individuals; businesses can also be protected from financial troubles, accountability, or imbalance if the owner/partner dies. In such a case; you may need to buy out the partner that’s deceased to keep the business going.
Whether supplying essential temporary loans or maintaining operations until things subside, life cover has an invaluable role in keeping your business afloat.
It also works as a reliable means to protect and gather assets, allowing you to leave cash for your family.
Entrepreneurs benefit massively from life insurance as a safety net to pay your workers or shareholders when you’re unable to.
Who Needs Life Insurance?
Life insurance isn’t limited to heads of families only with financial dependents. Various factors influence the question of who needs to get life cover as defined by Forbes. Though recommended for everyone, for some individuals, it’s a pressing necessity to get life cover.
Go through the following list and decide if it’s time to reach out to a financial advisor:
1. New Families
Starting a family is a big step, and you should take the responsibility seriously by making long term life plans. Investing before the matrimonial commitment will be cheaper as there’ll be fewer dependents to start with. If there’s a plan to have kids, there’ll be a time when you and your spouse may take leave to care for the baby. In that case, you’ll need to have a solid financial plan.
2. Family Women/Men
If you already have a family and they financially rely on you, then you’ll need to get cover. This goes beyond your significant other and immediate family, as you can even include your housekeeper and sitter. Often these people become part of your family so that you may struggle to get their replacement.
3. Young Singles
Even as a bachelor(ette), some people will be affected by your death, so it’s essential to have a plan for your burial costs. Planning in advance is the responsible thing to do, to make sure that you have a dignified funeral. It’s also a bonus because coverage for single people is super cheap as you’re at your healthiest.
If you’re in the middle of paying off a large debt, you don’t want to leave your family to inherit your debenture. Whether it’s a mortgage or student and car loans, you and your loved ones will be financially secure. Your estate won’t have to be repossessed in your absence, and your family can have peace of mind.
5. Childless Couples
If your partner suddenly passes, their insurance serves as a supplement for their salary, allowing you to maintain whatever comforts you already had. Even if the remaining individual has a substantial income, they’ll likely need help paying for the funeral.
6. The Employed
Your job may already offer you some form of life cover policy, but often, that isn’t enough, and you’ll need to supplement it. In any case, you could become jobless or move jobs, so you should have a cover that isn’t conditional.
7. You’re An Entrepreneur
Whether you own a company or hold shares in a business, it’s wise to get separate cover for your investment. Businesses are volatile, and you’ll need to protect your business obligations in case one of your partners dies or pulls out.
8. Dependent on Your Parents
This is more common than you think. Many people take insurance out on their parents to guarantee they get payouts when they die. Register yourself as a dependent on the cover you take out for them. If you’re responsible for the payments, then secure yourself as a fixed beneficiary to protect your stake.
You’ll also get peace of mind in knowing that you’ll be able to give your parents a dignified burial. Additionally, with age comes many health issues that usually become a financial burden. Taking out life cover, according to Business Insider, helps you relax, knowing everything will be taken care of.
9. Life Insurance For Children
Despite having no dependents, there are plenty of reasons why you should purchase coverage for your kids. For starters, children fall sick often, and in some families, there may be known genetic diseases. Parents who fear that health issues may affect their offsprings’ insurability later may invest on their behalf.
Such a cover works to cover funeral costs if the condition is fatal, or as a head start protection for when they’re older. This is an excellent gift if there are known conditions that may disqualify them from getting insured when they’re older. Many consider it an inheritance since the cover continues up until the children have families of their own.
Loss of a child may make you unable to work for a long time, and with such a cover, you’ll be able to mourn for as long as you need.
10. Preparing For Retirement
Death isn’t the worst thing that could happen to you. You could live to a ripe old age and find that you can’t work and so need to have a reliable income for your upkeep. Ideally, you’d have started saving early for your senior years, but if you didn’t, it’s still possible to get cover that old. You likely won’t have any dependents at that point and just need to make sure you prepare for your burial. I’ll remind you that it’ll be costly because of all the health problems that ensure with age.
With that being said, the amount of cover a person needs isn’t a straight answer. The variables that apply to your situation affect your needs, from age, gender, and social status. So take everything into account and also consider how much you can afford and reach out to an insurance representative to help you calculate your needs.
Relevant: Read the review of Ameriprise insurance here
Different Types of Life Insurance
As you may have guessed, life cover comes in many variations to incorporate the different needs various customers have. The insurance industry continually strives to provide tailored covers for their customers. In light of this, allow me to help you break down what they are and what each policy offers:
- Term Life Insurance
This remains functional within a restricted time frame. Your beneficiaries receive a settlement if your death occurs within this period.
If you live longer than the length of the agreement, your insurance expires, and you receive no payout. Very few insurers allow you to change and redeem it as a full life cover without you running a loss.
Usually, the fee isn’t fixed and may change over the years. Term Life cover benefits include more massive payouts for your dependents. It’s also less expensive than other alternatives.
Within term life, there also exists different versions like Group Term Life offered by companies for their employees. Another type is the Supplemental Life Insurance which consists of untimely death and dislocation cover.
- Permanent Life Insurance
With this type of insurance, your cover never expires. This comes in several variations, from whole life insurance to universal life cover.
- Whole life insurance covers you for your entire life and pays a settlement when you die to your loved ones. The premiums you’ll pay are fixed when you get the cover, so you’ll pay the same amount for as long as you live. Your health and youth work in your favor here since your charges will be cheap.
- Universal life cover, on the other hand, affords you more flexibility when it comes to your charges and premiums. Policyholders here can adjust the cost schedule of their payments after making the first payment. This way, you can grow your stake while simultaneously maintaining a life cover.
- A branch called indexed universal life insurance allows customers to reduce their charges to a stable account. This is a secure investment that isn’t influenced by inflation or economic changes.
- Joint or Survivorship life cover is for couples that decide to get a policy together in structured first-to-go or second-to-go coverages.
With the first, a settlement is made after the first party’s death to the named beneficiaries. The second only kicks in after both parties have died, and are commonly used with mortgages in mind.
- Variable life insurance is often viewed as a perennial life cover with an endowment factor. The cover’s worth is invested in branch accounts that can accumulate interest as the accounts expand.
- Mortgage life insurance functions like the rest, only there’s no specified beneficiary, the payout is made to your homeowner’s loan usurer. So even if you pass on, your house debt will be settled.
- If your beneficiary dies, Dependent Life Insurance pays out to you to help with funeral costs. The payout is minimal and covers “separated” spouses, older children, stepkids, or adopted kids.
- Final expense life insurance is made to settle hospital and burial costs after you’re gone. It’s also known as burial insurance and pays explicitly for your funeral since these are quite expensive
Figuring out that you need life insurance is the first step. Now that you’ve learned a little more about all the different types of insurance, things should be a little less confusing. We’re here to help you break through the clutter and learn more about the most popular kinds of life insurance, so you can decide what’s best for you.
Also read the difference between Term and Whole life insurance here.
One of life’s most uncompromising truths is that we’ll all die at some point. So the best you can do is to ensure that when your time comes, you’ve prepared sufficiently not to leave your loved ones to suffer.
With Life insurance, you can help care for your family beyond your grave, allowing them to grieve you peacefully. So take the step to prepare for the unknown future and get inspired today.
We’d love to hear from you if there’s something you need us to compare among these insurance giants.
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Comment and let me know what insurance-related topics you want to see in the future!