Do you need life insurance at all?
An interesting statistic, that is often ignored, is that 100 of every 100 people alive today will die. That is called 100% mortality - No one gets out alive.
We know it is going to happen – that “statistic” is a surprise to nobody. Yet many people have a fear of discussing life insurance – or think it isn’t necessary for them at the moment. Sometimes people are quite correct – they do NOT need it. But how can you tell if you are unsure?
There are 2 key areas to think about when considering Life Insurance:
- When is it necessary?
- And when it is, how much do you need?
Life insurance is a waste of money for anyone who has no dependents or liabilities that their existing estate couldn’t meet. In other words, when there is no-one else financially dependent on you there is no real loss that requires life insurance to step in and fix.
There are 2 possible exceptions to this general rule though. Sometimes a lender will insist on some cover to increase their lending security, and sometimes people will start an insurance program before they actually need it just to ensure they get cover on good terms (guarantee their insurability while they are in good health).
The other side of the argument of course is you DO need life insurance when someone else is dependent on your financial contribution and will suffer a financial loss if you die. If you aren’t around anymore, but the need for your financial contribution is, then you should have life insurance. Nothing else is quite as certain to walk in the door and help a family on the day you no longer can.
How much one needs is the tougher question, and can often only be adequately answered with trained and professional advice. There are various methods used to determine the value of a human life, and each method has some merit. One DIY way of getting a feel for what you may need is to do your own basic “needs analysis”. Just pretend you aren’t here any more – and then get your partner to work out what they need coming into the house starting next week.
What last expenses are required (the settlement of estate, funeral expenses, etc)? What loans or liabilities need to be removed? Is there a need for an emergency fund to see a family through for 3-6 months? If so, how much? Does money need to be set aside for other purposes, such as children’s education, or a partner’s retirement fund? Spend the money.
Your partner then does the same – and you may come up with different amounts and that is okay. Just because less insurance is required for one person in a partnership it doesn’t diminish their value. You should be working out what you need, not what is politically correct.
Don’t be scared of large numbers either – sometimes the numbers appear very large indeed. But insurance has never been cheaper than it is today.
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