Life Insurance: 5 Things to Consider
According to statistics recorded in 2020, approximately 40% of people in the U.S. are left in financial distress after the death of a family member or loved one. This is due to the deceased person not investing in life insurance.
Perhaps it is because there appears to be no immediate value or maybe some people don’t realise their own mortality until it is too late. Whatever the reason may be, the fact is that too many people still go without life insurance today.
What happens to your family if you pass away unexpectedly tomorrow? Are you able to guarantee your family the same quality of life? Will they be happy or comfortable?
Did you know that funeral costs are increasing every year and average approximately $10,000 (USD)?
When it comes to life insurance, being well-informed is essential. Here are five key points to keep in mind when you look for cover that will take care of your loved ones when you’re gone.
What is life insurance and what does it cover?
A life insurance policy covers all costs related to your death and guarantees your family’s immediate financial security. If you die as a result of illness or accident, the specified amount that your life has been insured for will be paid to the policy beneficiaries, e.g. family members or loved ones.
That sum will also cover the expenses related to medical care, funeral and legal fees, as well as any accumulated debts that you may leave behind. It will also leave your beneficiaries with a comfortable amount of money, that they may grieve without any financial worries.
Further, some life insurance providers offer policies that will insure both your life and the life of another person. This type of life insurance, known as a joint life policy, can usually be structured in a way that the beneficiaries can receive the financial benefits after the death of the first insured person or, if preferred, after the death of the second insured person.
A joint life policy is typical amongst couples whose beneficiaries are their children and or grandchildren.
Is it worth taking out a life insurance policy?
The simple answer is yes. According to one financial advisor, the amount that your beneficiaries would receive far exceeds the total amount that you would pay in monthly premiums for your life insurance.
As such, investing in life insurance is a financially wise decision for you and for your family.
Accidental death is the number one cause of death for adults between the ages of 18-37 and it is the fourth cause of death for all other age groups. Road and traffic accidents account for a large percentage of this. Whether by accident or illness, unexpected fatalities are a reality that most don’t anticipate until it is too late.
Life insurance is perhaps the only way one can prepare for this.
When should you take out life insurance?
There is no wrong time to invest in life insurance. The right time is you have family or loved ones that you would like to ensure are financially stable, should you pass away unexpectedly.
Premium amounts do relate to the age and health of the insured person, so investing in life insurance at a younger age is usually a good idea.
Investing earlier in life may mean significantly lower premiums, as well as guarantee financial security.
For people starting a family, buying their first house, and planning university tuition savings for their children, investing in life insurance is another important step in establishing a financially secure household.
Who needs life insurance?
Life insurance is for everyone: single, partnered, married, divorced, small or big families, retirees, etc. In particular, life insurance is ideal for those who have people financially dependent on them, e.g. parents, grandparents, caregivers, and primary income earners.
The unexpected death of a loved one is a traumatic experience, made worse by the burden of financial stress. Investing in life insurance for those who are dependent on you alleviates that stress.
Life insurance also covers any expenses related to an untimely death, such as hospital fees and funeral costs. It is a responsible decision to ensure this is also accounted for when planning for the future.
How much should your life be insured for?
Statistics show that up to 30% of people in the U.S. are underinsured, with the sum of the insured not being sufficient enough to provide financial security for the beneficiaries. As such, the insured amount should be large enough to anticipate all future expenses and the needs of the beneficiaries.
As a guide, Forbes states that the insured sum of a life insurance policy should be at least 10-15 times the amount of your annual income.
This is the only way to guarantee that any remaining tuition, funeral, legal, hospital and mortgage costs are covered after your death.