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There are a few key points to understand before taking out life insurance cover.
Firstly, life insurance is not there to benefit the person with the cover. It is there to assist those that we leave behind. Usually this is our spouse and children under the age of 18, or still in the education system.
Secondly, insurance is not there to improve someone’s financial situation beyond what it was beforehand. Insurance levels should be as close as possible to the actual costs incurred by the tragic events that give rise to claims.
Here are the most common considerations you will need to make and put a dollar value on:
Let’s get all your debts paid off so that the family can keep their home and not have to stress out about creditors wanting payments for loans and credit cards etc.
Young children cost money, so work out the age you’ll support your children to and deduct their current ages from that figure. Now put an annual figure to each year and multiply it out to see how much money will need to be set aside to raise those children. Remember to include the cost of living and education.
Think about the family income, where that money comes from and if it will continue. Even a family with two working parents often finds that the surviving spouse can’t work the same without their partner’s support and assistance. Once the children are grown and the mortgage is paid off, most surviving partners will be able to support themselves so think about how much money the family needs annually and for how long. Remember too, a grieving spouse probably isn’t going back to work the following week.
How much will the funeral cost? This is not an expense your family needs to worry about at a time like this, so make sure there are funds purposely for this cost.
Now there are other things we could add to that but at a basic level and keeping in mind my point above, where we are not expecting a lottery-like payout, this covers the bases and ensures your loved ones are financially secure.
These figures are going to change significantly through different life stages so it’s important to reassess them every few years.
DISCLAIMER: These are my opinions only and do not constitute advice in any way. Please contact a qualified financial adviser for advice specific to your situation.
