Life Insurance Explained
We all worry about it. That inevitable time we all go through, having to plan for the future of our families when we are no longer there. We cannot avoid it, and it is always best to have that peace of mind knowing our loved ones will be left with enough to get by and be ok when we are gone.
Life insurance is so important. Having a good policy that is in place for the day you pass on is the last and final gift you can give your family. We spend our lives building up our businesses, ensuring the financial wellbeing of our dependents. Part of that financial security is knowing that they will be financially protected in the future.
Why isLife Insurance so important?
• Carrying on your family name is important, and part of that is ensuring your children will be set for life once you are gone, life insurance is one of the ways you can ensure they will inherit when you are gone, even if that is all you can leave behind.
• We never know when the day will come when our children will need to fend for themselves. By having good policy coverage you can ensure they will be able to have a good college fund and be able to start up their own business venture should they so wish.
• You cannot control what happens when you’re gone. Having a sturdy policy in place is one way of knowing you can control whether or not your family will be able to mourn your passing and not worry about bills and payments once you are not there to pay them. Having a life insurance policy not only gives you peace of mind but gives your loved ones the same peace of mind knowing that there is a safety net to cover them should that day come.
So why is Life Insurance important if you are not married and don’t have children?
Whether you have a family or are living it up as a bachelor, life incurs expenses. Life insurance for any one is important. What happens when you pass away and you still have debts or you are a partner in a business venture? Having life insurance will ensure that your final costs will be covered when you pass. The benefits of having Life Insurance:
- Your funeral costs and all costs involved will be covered,
- Help pay out anything set up in your partnership, should you be involved in a business,
- Leave money behind for your parents or other family member,
- Leave money for college for your nieces and nephews.
The gift of financial stability for any one is priceless.
Here are 10 different types of !Life Insurance - yup- 10?
Bet you didn’t know there were that many hey?!
1. Final Expense
5. Variable Universal
8. Increasing/ Decreasing term
9. Non-medical/ No medical exam
Types of policies explained:
1- Final expense: this is the type of insurance that is generally given to those who are between the ages of 50 and 85. This is not a life insurance per se. It is more of a burial fund to ensure that loved ones will not be left to foot the bill when you pass away.
2- Survivorship: this is the type of policy that can cover more than one person. In the case where no one really knows who will pass away first, this policy can be set up in many different ways and pays out as soon as the first person passes so that those left behind will be left financially stable.
3- Term: this is the most basic of life coverage’s. It only covers purely the death of the holder. This can be purchased for any number of years with a renewal option. This is considered the cheapest of life coverage’s. This is NOT a permanent cover.
4- Universal: this is another form of permanent life cover. It offers both a death benefit and cash component. The policy holder has more control over how much of the funds go to each.
5- Variable universal: this is similar to the universal cover except in this policy the holder can invest the money into different funds.
6- Whole: in this policy the premiums are set and won’t change throughout the life of the insurance policy. The cash component is allowed to grow untaxed until its withdrawal. This is the better option for those who like to see their money grow and prefer a set rate because they live on a budget.
7- Permanent: this is as the name says, a permanent coverage. It has both a death coverage as well as cash component. This policy will stay in place for the life span of the holder.
8- Increasing/ decreasing term: in this policy the life coverage amount increases or decreases based on what you purchased. This is usually taken in the case where a home needs to be paid off. So as the home outstanding funds decreases so does the coverage. So when the holder passes, the balance of the funds will be paid to complete the home payments. This can be renewed should the insurance policy reach zero before it is paid out.
9- Non – medical/ no medical exam: this is exactly that. A life insurance policy that can be taken without needing to meet with a medical professional and have medical tests done in order to be approved for the policy.
10- Variable: this is a more open ended permanent life policy where the holder can invest the cash component in different equities and have the money either grow or decrease based on the market. Where there is a fair amount of risk involved the cash component cannot go below the agreed set amount.
Ensuring that the loss of a loved one, is not any harder than it has to be
Going through a death in the family is a very difficult and traumatic experience. Many carry that loss for years after the death due to debt that comes with not having enough money to cover the expenses of the passing. Funerals and burials can be a very expensive endeavour and more times than not, a family cannot carry that financial burden and end up in massive debt. Making sure that your family is taken care of in this instance is more valuable than you would realise at the time. Many life insurance plans come with a funeral fund or plan attached. Having these finances set aside can alleviate a very heavy burden and give your family the opportunity to mourn with peace of mind knowing everything can be paid for.
Take a moment to think about this.
Can you honestly afford to not have life insurance cover? Should you pass away in the next 30 minutes, or the next 30 years, are you certain that your family and loved ones, will be able to cope when you are gone?
So how does life insurance really work?
When you have reached that point in life when you realise you won’t be around forever and need to ensure your family is taken care of should you no longer be around, you start looking for a good life insurance company to help you set up a policy that will pay out once you pass away and your family and loved ones that rely on your financial input. The life insurance policy can then utilise this money to secure your family. All you do to make sure this is possible, is simply pay the monthly premiums for this policy until you pass away.
So now that you know who the best in the life insurance industry is, how do you know which life insurance policy to take? - Choices choices choices!
When it comes to life insurance policies, people don’t always realise that there is more than one choice, more often than not everyone grabs term insurance before taking the time to have a look at everything offered.
When is the best time to take out Life Insurance?
The earlier the better. As they say the early bird catches the worm. The best insurance deals are there for the younger generation in their 20’s. Reason why; is that insurance premiums and policies are all based on your age your gender and your health. So when are you at your best age, health and state of life, your 20’s!
“Insurance premiums are very affordable when you are young and healthy. You are also able to add extra benefits to your policy such as guaranteed insurability later in life when you may want to increase your cover as well as premium waiver cover whereby your premiums will be paid by the insurer if you are no longer able to earn an income due to disability, dread disease or retrenchment,” -Peter Dempsey, deputy CEO for the Association for Savings and Investments SA (Asisa)
The earlier you get your cover, the more you can do with it. Learn how to invest your cash component and form a nest egg for your loved ones.
Finally… how much is enough when it comes to Life Insurance coverage?
This is a very tricky question and there is no right answer. Your life insurance coverage amount will be different from person to person based on their circumstances. Most insurance professionals will tell you to take your annual income and times it by ten and then add a bit. Others would say work out your income and expenses and cover the short fall that would be left should you pass away.
There is no exact science to this and the best bet would be to sit down with your broker and work out what will best suit your unique situation should you pass away.
Rather have more than enough than too little.