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October 27, 2020
The spiritual roots of vulnerability
October 27, 2020

Life Insurance – means and myths

Today we are continuing on the topic of ‘life insurance’. As mentioned in my last column, life insurance can be used for many purposes.

Personal Life Insurance: While no amount of insurance can bring back anyone’s life, its main purpose is to assist your loved ones financially—you don’t buy life insurance because you are going to die, but because those you love are going to live.

Your income immediately stops upon your death, but all the bills and expenses continue. This may even increase based on any outstanding medical expenses that may be pending prior to your death.

So how do you determine the amount of coverage needed? Let us look at some simple calculations. Firstly, determine your total liabilities and possible final expenses like mortgage balance, credit card debt, hire purchase balance, consumer loans. These should be covered first.

Your final expenses are the cost of burial and any medical bills if you were hospitalised prior to your passing. The cost of burial could be as little as $9,500 or as high as $60,000+. These are just the costs of the coffin/casket.

There are other additional costs at the funeral home that you need to look into e.g. rental of the hearse, driver, embalming, crematorium, or burial cost at the cemetery.

Now let’s look at your family needs. Firstly, there are immediate needs, the amount of money your family needs to continue to live comfortably for at least three years. This is  called the adjustment period.

Now we look at the goals you had set for your children’s education. Based on my column (CN September 6) where I spoke about educational funding, this you can decide and add to the insurance coverage needed.

Last but by no means least, the amount your spouse needs to survive. This would vary based on the adjustment period and the ages of your children.

While it may appear to be a daunting task and huge coverage amounts, this can be done in stages as your income increases over time. The longer you go without life insurance, the less chance you have of getting it and the more it would cost you.

Insuring your income is one of the easiest ways of creating that financial estate for your loved ones. By this I do not mean a disability income policy, but a continued steady flow of your current income even after your death. The idea is to create a fund that can sustain your income.

You may say with the cost of living it is impossible to buy life insurance, but will the cost be any less for your family when they do not have your income to use?

If you are in any of these categories, then you DON’T need life insurance:

  • You are never going to die
  • You are going to win the lottery
  • The government would take care of you and your family

Life insurance is the only plan that will guarantee a known sum of money at an unknown time.

So, when should you buy life insurance? NOW! It is that simple. The best time to buy is now, before it’s too late, before your health deteriorates, before you get older, otherwise it would cost much more or even not get it.

According to the international research institute, Life Insurance Marketing and Research Association (LIMRA), 41 per cent of adult women have no life insurance.

Some myths about life insurance:

  • Too expensive
  • Too early to think about that
  • Singles do not need it
  • Group insurance is enough

Make an informed decision now and get adequate life insurance. As jokingly as it may sound, ‘some wives don’t believe in life insurance…. but widows always do’.

In my many years as a financial adviser, I have heard many spouses say, “I wish he had taken out more coverage “. This is the stark reality when a breadwinner dies, and life continues.

Next time I will focus on business insurance, so until next time….”There is nothing in this world that can trouble you more than YOUR OWN THOUGHTS”…. Unknown.

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