Why life insurance is needed

IF INSURANCE is considered a grudge purchase, then life insurance – insurance that is meant to cover your debts when you die – is often met with resentment. You know it’s important, but who wants to think about what happens after you die?

When money is short, life insurance is one of the first things to go.

Don’t be tempted to drop your life cover because you don’t have major debt that needs to be covered. Life cover doesn’t only protect your loved ones in death; it also looks after you and your dependants if you become ill or disabled and are unable to earn an income or provide for your family.

Another reason why life insurance is important is that it allows the policyholder to leave money to their family as an inheritance. Those who plan to leave assets in their estate to their loved ones, must also consider the tax implications attached to the assets.

How much life cover do you need? The simplest rule of thumb is to multiply your annual income by 10, which will give you a rough estimate. This is a rough guideline and that this figure may vary, depending on your age.

There are things you might consider doing instead of dropping your life insurance when times are tough.

Consider trading your funeral cover for life insurance

Many life insurance policies have an in-built funeral benefit that can be quickly accessed in the event of death to cover funeral-related expenses before the life insurance payout, which is subject to normal claims underwriting. Make sure to check that your life insurance includes a funeral benefit.

Look at decreasing your premium

Talk to your financial services provider or adviser about decreasing your cover. Many people find that their cover needs have decreased over time.

Some providers also offer policyholders more flexibility, allowing them to pay their premiums at any time during the month and via various payment channels. Sometimes, there is an offer of a premium skip benefit, and if you’re in a bind and have no other option but to allow your policy to lapse, we will still give you full cover when you restart your plan.

If you’re approaching – or in – retirement, check to see if your policy offers a cash-back or paid-up benefit

Some providers will offer a fully “paid-up” benefit when you reach 65, allowing you to keep your cover but without any more premium payments, while others include a “cash-back” benefit, whereby if you live until a certain age and have paid all your premiums, the policy will pay out a lump sum as a bonus.