Wednesday, 1 August 2012

Should I get life insurance?

This post will deal with the question of whether you should or should not get life insurance.  I will leave the question of what type of life insurance you should get for a later date.  However for completeness I have outlined the type of life insurance here:
  • Term life insurance provides coverage for a specified number of years ( normally until you reach a certain age ).  This is the most commonly available type of life insurance.  There is no accumulation of cash and therefore you cannot exchange it for cash.
  • Whole life coverage provides for a flat premium over your whole life.  It provides guaranteed death benefits, cash values and premiums.
  • Universal life coverage is a new product in the insurance space and combines a term policy and a whole life policy which when combined can give you a more efficient outcome than just having one or the other.  As yet these are not commonly available
  • Endowment policies are paid out whether the insured lives or dies.  There is a specified age at which, if the insured is still living the policy starts to pay out cash.
Should I get life insurance?

Getting back to the question of whether you should get life insurance the answer is that it really depends on you individual circumstances. It all comes down to whether , when you die, there are people who will be significantly worse off financially without you present.  it really is a decision you need yo be making as a family or couple as it s your partner and other dependents who will be most affected by your death.
You should very seriously consider getting life insurance if:

  • You have a family and are the primary breadwinner and without your income your partner would really struggle
  • If you have a mortgage and live with your partner and they would struggle to keep up with the repayments if you were not around
  • If you support elderly parents or other relatives
  • If you do not have sufficient savings such that your dependents would struggle without you there.
As you can see this type of insurance has very little to do with you it rather to do with those to whom you have a responsibility towards.  Conversely therefore you do not need life insurance if
  • You are single with no dependents
  • Your family is sufficiently well set up with savings and a paid off mortgage such that they would not really struggle without you there
Even if my family is well set up isn't life insurance a nice backstop to have?

Everyone has different views on this point and it probably has to do with your level of risk aversion. 
  • My view is that life insurance is not cheap. 
  • It provides a handy backstop in the event that you are not prepared or are at a stage in your life where you are just building your financial foundations. 
  • However if you are well set up or single then it is using money that you could otherwise be enjoying today while you are still alive instead of having over protection for when you are no longer around.
Next time I will be writing a post on what type of insurance you should get and how much you should cover yourself for.

Do you use life protection insurance and do you think you are under or over prepared in the event you or your partner pass away?  

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