I hate talking about life insurance … I wish I could call it something else but I can’t – no-one likes the thought of dying, especially leaving people behind. Imagine if you will, going from two incomes to one….or even worse to NO income. Its not just the financial stress we need to deal with, more important and commonly overlooked is the emotional stress. I often hear people saying they would go back to work and sell their house, its never that simple. Going back to work or selling a house quickly is not a reality, your family will need you.
Obviously no amount of money can replace a life.
For most people I meet life insurance is not a topic of conversation but it’s a necessity and one that we all need to address. Particularly what we provide to those closest to us and where they’d be financially if we weren’t around. When it comes to planning your financial future a comprehensive, up-to-date life insurance plan is crucial and unavoidable.
In general, people buy life insurance right after they get married, buy a home or have their first child. They tend not to give it another thought and let their policies roll over year on year. This is a common mistake and a biggie. A lot can happen in five years – more children, higher salaries, more debt. So it’s important to keep your cover up-to-date, to make sure your insurance cover still meets yours and your families needs.
Consider how much cover you need
Below are a few questions to help you quickly assess how much life insurance you may require.
1. Do you actually need life insurance?
This answer hinges on whether your death would create financial hardship due to loss of income for a surviving spouse and any children.
2. In a relationship – do you both need cover?
One of the biggest mistakes some married couples make is only insuring one partner – the primary breadwinner – and not the spouse who has stepped back from his or her career to take care of the kids. This can be a costly mistake if the stay-at-home parent dies. Among other issues, the surviving parent may face much higher child-care expenses.
3. How much financial cover is needed?
Often people give little thought to this question and come up with an estimate that may not reflect their actual needs. I meet a fair number of people who are already insured for a convenient round number like $1million. This tells me they’ve licked their finger, put it up in the air and said, ‘That sounds like a nice number’. While it might sound nice it may not actually be enough to cover costs.
I promote a needs-based analysis that takes a number of factors into account. Careful consideration is made of how much it would take to pay off mortgages, fund kid’s education and replace lost incomes.
It’s a vital financial safety net for your family and will give you significant peace of mind.
Get life insurance young and save
The most cost-effective time to secure life insurance is before you start having health issues. It’s a bit of a double edged sword – as generally when you’re in your early twenties you feel invincible and haven’t needed to consider what could go wrong health-wise. However, if you have a plan in place early and become unwell or develop a chronic condition you’re less likely to pay for it in your premiums. So why would you pour precious beer money into something so sensible? If you wait until midlife when health issues generally start to arise – along with responsibilities like family and a mortgage – you may find your premiums are higher or you can’t get life insurance at all!
Obviously no amount of money can replace a life. Having life insurance will make sure that in the event of death your loved ones won’t be left with a large financial burden on top of their grief. It’s a vital financial safety net for your family and will give you significant peace of mind.
Mike Broadbent is the director of Evergreen Life www.evergreenlife.nz, 0800 577 366.
Read more of Mike’s columns here.