Why You Need Life Assurance.
Is life insurance necessary for everybody? How would you know whether you need it or not? How do you determine the life insurance policy that is appropriate for you? In this article, you will find answers to all these questions and some other issues you may like to know about life insurance.
What is life insurance?
I will try to explain this in a layman language so that readers of this article can understand what life insurance is all about. Let me ask you a question before I continue. Are you afraid or anxious of the future? Have you actually sat down and thought about the reason for the fear or anxiety about the future? The reason you might be afraid or anxious about tomorrow or the future is the lack of assurance of the security of tomorrow. Then, let’s take it further. What are those things that make you feel that the future is not secure? Some of the reasons people feel insecure about the future include sudden or untimely death. Of course, such death may result to loss of income to your family or dependants, inability to pay off mortgage loans, inability to finance children’s school fees, inability to maintain the current standard of living and family unable to handle certain events after death etc.
You will agree with me that the thought of the above alone can make person become anxious. This can even lead to sudden rise in blood pressure. The fear of what tomorrow may bring can rub one of today’s joy and peace. On the other hand, people may feel a sense of irresponsibility if they don’t think about the issues mentioned above. While it may seem good to think about them, such thought without taking steps to address the situation can lead to untimely death. If you find yourself in this type of situation, life insurance may be the solution to the problem. So, let’s go back to our question; “What is life insurance?” It is the type of insurance that protects your family, dependant or named beneficiary against the loss which might arise as a result of the death of the insured. In other words, life insurance will help your dependants to live the kind of life you would like them to live if you are alive so that they will not need to feel any financial loss that may arise as a result of your death. Apart from insurance against death, you can actually insure yourself against terminal illness, critical illness, disability due to ill health, permanent disability, or requirement for long term care. It is important to mention here that there are certain events which your policy may not cover. This includes death arising from war or by engaging in certain high risk activities such as skying or acrobatic flying.
Who Needs Life Insurance?
The next question you may ask is that, do I need to be insured? Does everybody need it? Well, the answer could be ‘yes’ or ‘no’. It depends on your situation. But the truth is that, everyone that has dependants needs life insurance. If you have anyone that you care about, who you don’t want to suffer any financial loss due to your death, then you need life insurance. However, if you don’t have anyone depending on you financially, you may not need the policy. Some think that life insurance is for married people only. No, this is absolutely incorrect. For instance, if you are single and have parents that depend on you for their upkeep, you need life insurance. Some people may say that that they are still young and they will eventually get it later. This is procrastination. Whatever you know it is right to do, just do it straightway. If you die today and there is somebody you think might suffer a loss and you don’t want such person to suffer the loss, you definitely need a policy to protect the person. I understand that everybody have financial commitments, It is good to make life insurance as part of that commitment. Of course, people buy life insurance for different reasons. For some, they may want to protect their spouse, children and other dependants. Others may want to stay committed to their good works after they must have passed on by continuing with their donations to the charitable organisation of their choice.
When Do I Buy Life Insurance?
Now that you have realised you need to insure yourself, another question you may want to ask is, when is the right time to buy a policy? There is this general misconception about life insurance. Some believe that they need to wait till the time they are old or until they get married before they start thinking about life insurance. If you wait, you are actually putting the welfare of your dependants at a risk. Life is full of uncertainties. You cannot predict accurately when exactly you are going to die. When you read Newspapers or listen to news about obituary announcements, you will realise that death does not have respect for age. In fact, the earlier you buy life insurance the better. It is always cheaper to buy life insurance policy when you are young than to wait till you are old. This is because young people are usually healthy. This makes them to enjoy cheaper life insurance rates. Another advantage of buying life insurance policy when you are young is the assurance of your insurability even if your medical situation changes. Unfortunately, people see it the other way round. They believe that they don’t need life insurance because they are healthy. The truth is that, you should buy life insurance when you are healthy. If you wait till the time you are no longer healthy, you may become un-insurable. If any life insurance company considers you for a policy, you may pay your premium through your nose.
How much life insurance do you need?
The answer to the amount of coverage you need is relative. The amount of life insurance coverage needed will vary from individual to individual and from situation to situation. However, in this section, I will provide a basic guide on how you can determine how much coverage to buy. Below are some factors that may impact on the amount of life insurance you should buy.
- Stage of life: The stage you are in life will have a great influence on the life insurance coverage you need to buy. A young healthy individual may not be required to pay high premium as much as old person around fifty years old. Also, a person that is still raising children will require much more coverage than somebody whose children have all graduated from universities, and are married and now independent.
- Marital Status: Your marital status is another factor an insurance company may consider in determining the amount of coverage you need. A single may not have as much responsibility as a married person. Although there may be some exceptions to this. But the truth is that, your responsibility tends to increase when you become married. Your spouse becomes an additional responsibility which you need to take into consideration in case of sudden death.
- Number of Dependants: How many dependants do you have? If you are a breadwinner of a large family and you want to protect all of them in case of death, definitely, you will have to pay high premium because of the coverage. But in a family whereby everyone is well to do on their own without the need of depending on one another, your interest will just be on how to project your immediate family. This will comprise your wife and children.
- Income level: Your income level will have a lot to do about your lifestyle and the standard of living you set for your children. We have seen a situation where a man put his children in one of the best schools around.When he died, the children had to be withdrawn from their schools and enrolled in government schools because the surviving wife cannot afford to pay their school fees. The level of your income impacts on your lifestyle. If you want to maintain the standard of living you have set for your family after your death, you should prepare to pay premium for coverage that matches that lifestyle.
- Debts: A person having a huge outstanding mortgage loan balance to pay will be required to take higher life insurance than someone with little or no mortgage balance to pay. If you leave huge mortgage loan balance behind for your family without any insurance to cover the payments, you may be exposing your family to the risk of foreclosure.
To conclude on the amount of life insurance policy you should buy, I will say that you should endeavour not to go below the amount that will cover your funeral expenses, repayment of your outstanding mortgage or other loans and your family living expenses. Your family living expenses will depend on how large the family, their age and the level of education of the children.
How Do I buy Life Insurance Policy?
Do you know that some people find the process of buying life insurance intimidating? It will seem intimidating if you don’t understand the process. If you don’t know how to go about it, all what you need to do is to try to find out relevant information concerning it. In this section, you will be able to have a clue of how you can buy life insurance policy if you are interested. In addition to the information below, you can actually get useful information from insurance broker that you trust. Below is the highlight of how you can buy your life insurance policy.
- The first thing you need to do if you are interested in life insurance is to define your objective. What exact objectives do you want to achieve with the life insurance. Is it just to ensure that your burial expenses are well taken care of without putting any burden on any family members? Is it to ensure the welfare of your loved ones after your demise? It could even be that you have mortgage that your family may not be able to pay off if you should drop dead. One thing about life insurance is that you can hardly see two individuals whose their objectives or needs will be the same. If the objectives are the same, the level of coverage may be different. For example, the objectives of two different persons may be to ensure the continuity of their children education after they must have gone to the grave beyond. But you may discover that the educational needs of their children may differ so also the number of children they each have. The levels of education of each child will also influence the insurance needs of the individuals. Your objective will determine amount and the duration of the life insurance required.
- Contact some life insurance companies to understand their underwriting requirements. There are many insurance companies around and it may surprise you to find out that they have different underwriting requirements. Unlike property insurance, life insurance does not have any particular standard form. each insurance company has its own terms and rates. Don’t hesitate to ask them questions in order to ensure that you understand their requirements. Don’t forget that whatever requirements they propose to you apply to the general public. Therefore, you can actually negotiate the offers you receive based on your peculiar needs so as to ensure that you are buying the right policy at a good price.
- There are different types of life insurance out there but the two major classifications are Term Life Insurance and Whole Life Insurance, You need to determine the type of policy that is appropriate for you. Termed Life Insurance is cheaper than Whole Life Insurance. Nevertheless, it is advisable that you don’t make price as the only guiding factor for your selection of a particular type of life insurance. Everybody has his own risk tolerance level. You should understand your own and choose the type of life insurance that matches it. Before you decide on any type of life insurance, you should read all rules and terms that apply to that specific company. Ask any questions if there is something you might not understand. For example, if you are choosing term life insurance, you may want to find out if it can be converted to whole life insurance.
- Having received quotes from different insurance companies on the type of life insurance that is suitable for you, you can now select the company that you considered okay for you. When comparing quotes, make sure you compare apples with apples. Insurance products must be reviewed to ensure that they meet your needs. Apart from the type of life insurance you opt for, insurance companies will consider other factors such as your gender, age, location, career, lifestyle, family health history and habits to determine your life insurance rates. The same way you will not allow price alone to determine the type of life insurance you pick; you should not just settle for a particular insurance company because of cheap quote. One of the major factors you need to consider is the financial strength of the insurance company. There are insurance companies that have been around for a long time and are still waxing stronger by the day. They have passed through different economic storms and still, they are in operation. If you buy your policy from this class of insurance company, you can rest assured that your money will not be lost. In the contrary, there are small insurance companies that you hardly hear about that are actually doing fine. However, it is safer to to buy your life insurance policy from the company you are sure will still be operating in the next thirty or forty years. While some investment may require your active monitoring, if you choose right insurance company and pay your premium promptly, you may not need to worry yourself about the investment. However, the good news about insurance industry is that the industry is regulated. Before any insurance company can be licensed to operate, it must meet certain requirements as spelled out by the regulatory authority. Please, understand that the license of an insurance company can be withdrawn if it no longer meets the necessary requirements. That is why I usually prefer insurance companies that have been operating for a very long time so that there will not be any fear of whether its license will be withdrawn tomorrow. Whichever insurance company you want to choose, please you should check the license status of the company. Other things you may want to find out before you finally select a particular insurance company is the level of its customer service. Does the company have good customers’ payment record? What are the customers saying about the company? You can read comments and reviews on the company from customer review websites. I suggest that you lay more emphasis on customers’ comments rather than the reviews on review websites. The reason being that some of the review websites tend to promote companies in order to earn affiliate commission. Any review made with an objective of earning commission may not be totally objective.
- Obtain the life insurance application form. Please note that you don’t just collect quotation from a insurance company and make payment just like that. You need to obtain an application form and ensure that the form is properly completed and submitted. Do not sign the proposal form blank. Ensure that the policy is well defined without any ambiguity. It is very important that the names and the titles of the beneficiaries are correct. You have to be very specific by mentioning the names of the beneficiaries. For instance, it may not be sufficient to mention “my last child” as the beneficiary. You need to actually mention the name of the last child as the beneficiary. This will prevent argument at the point of disbursement of the proceeds from the life insurance as you will not be around to supervise it. If you have a will, the will should not contradict the information provided on your application form. On the issue of beneficiaries, you are free to choose anyone as the beneficiary. If any of the beneficiaries is a minor, you will need to appoint a trustee to administer the payout of the proceeds to the minor. Beneficiary can be revocable or irrevocable. In the case of revocable beneficiary, you can change the beneficiary at any time without any recourse to the original beneficiary. On the other hand, for irrevocable beneficiary, you may not be able to change the current beneficiary except you obtain permission from the current beneficiary. The reason for a change of beneficiary may include marriage, divorce, death of a beneficiary or the birth of a new child. Also, you may have a contingent beneficiary. In this case, the beneficiary will only become in force if there is a sudden death of the named beneficiary. Provision for contingent beneficiary is very important especially if you have sole beneficiary. If a beneficiary dies without any provision for contingent beneficiary, your life insurance may be passed along with your estate.
- You can then proceed to pay your premium. Let me mention here that life insurance policy requires that you pay your premium promptly. Insurance company usually offers thirdy days grace period for the payment of premium. Therefore, you need to choose the type of policy or the amount of coverage that you believe you will be able to pay on an on-going basis. After you must have paid your premium, you still have opportunity to study the policy. In some countries or states, the law allows ten day period to study the policy. If you don’t like the policy, you can cancel it within this period and your premium will be refunded to you. Don’t forget to obtain receipts for your payments whether you are paying through an agent or directly to the company. I suggest that you open a file for your policy where you can file both the policy and the receipts of the premium paid. It is also important that you let your beneficiaries or someone you trust to know where you keep the file. Whether you are buying term life insurance or whole life insurance, you need to keep reviewing the policy on a regular basis so that the information therein does not become out-dated. Ten, twenty or thirty years-period is very long. Many things can happen in between. There may be addition of a new baby or a death of any of the beneficiaries. Other reasons that may necessitate a change in your policy are divorce, marriage, change of name or change of address
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How to Get Cheap Life Insurance Rates
Whether you are low or top income earner, there is nothing bad in saving costs whenever it is practicable, Buying life insurance does not mean that you should just pay whatever rates that insurance companies throw at you. There are practical steps you can take in order to enjoy cheap life insurance rates. Few of such steps are discussed below:
- Shop around. If you don’t shop around, you will not know whether there are cheaper life insurance rates elsewhere. In fact, you will think that the premium you are paying is the best rate you can ever get. If you are old or may be, you have health challenge, you should not be surprised if some of the insurance companies you approached turn you down. They usually use different parameters to decide who to enrol into the scheme. Also, you will discover that some policy may be quite unnecessarily high while some will be fairly reasonable. For you to be able to make good quotes comparison, you must provide the same information to all the insurance companies you approach. This will help them to base their rates on the policy that will meet your needs.
- Opt for annual payment option. Annual payment plan is always cheaper than monthly payment. You can save between five and ten per cent on your life insurance rates if you pay annually. Before you buy any policy, you need to be sure that you only buy the policy you can afford even if the rate increases. Some insurance companies offer lower life insurance rates in the first year. Find out their premium. Some life insurance rates remain the same all through while others may change. Bear in mind that as your coverage increases, your premium will also increase. Therefore, if you think that you don’t necessarily need to provide a coverage for a particular person, there is no need to include him in your policy.
- You can get cheap life insurance rates if you apply when you are still young. Don’t think that you are saving cost by deferring life insurance policy till you are old. You can actually lock in cheap premium if you sign up when you are young and healthy. If your health status later changes, your insurance company may not be able to stop the policy.
- Maintain healthy habits to stay healthy. Healthy leaving can make you enjoy cheap life insurance rates. There is this warning that usually follows advertisements that promotes cigarette. It reads, “Smokers are liable to die young”. Since insurers consider your habits and lifestyle to determine your life insurance rates, smoking will impact on how much you will pay as premium. If you desire cheap life insurance rates, then it is advisable that you don’t smoke. Apart from smoking, excessive alcohol will also make your life insurance rates to go up. However, if you drink alcohol or smoke cigarette, you should not tell lies to your insurer in an attempt to get cheap life insurance rates. If your insurer discovers that you lied, your policy may be cancelled.
- Improve your credit score. Just like auto insurance, a good credit score can lower your life insurance rate. If you have bad credit score, it is advisable you improve your score before contacting insurance companies for any type of life insurance
- The hazards attached to some job are very high. If you engage in such career, you may be charged high life insurance rates. If you engage in safe occupation, there is a tendency for you to have access to cheap life insurance rates. The risk level for drivers is different from someone who works as a medical doctor. At times, the hazards we are talking about here may not be job specific. It can be as a result of where you work. So, if you work in a risky environment, you may consider a change of job to a safer environment.
- Don’t engage in reckless driving. People with history of accident should prepare to pay high premium. On the other hand, if you drive carefully with no accident history, you can enjoy cheap life insurance rates. If you bundle your life insurance with your car insurance, you may not be in a position to enjoy of discount that come along with it.
- If buying cheap life insurance policy is your objective, you can choose to buy term life insurance instead of permanent or whole life insurance. Another approach to this is for you to buy term life insurance and later convert it to whole life insurance. However, you need to find out from your insurer if this is possible before you sign up to term life insurance.
- Buying from insurance broker instead of an agent can save you few bucks. The reason is that there is tendency for brokers to be working with many insurance companies. This will make him to be able to secure various life insurance quotes from different companies for you. From there, you can then choose the one that is suitable for you. Quotes from agents are usually restrictive.
Why Life Insurance?
As mentioned before, while life insurance may not be compulsory for everybody; there are instances that may necessitate that one buys a policy. Some of these reasons have been mentioned. Here, I am going to go into more details on why people buy life insurance policy or why you may need one.
- Funding children education expenses: Education is very expensive nowadays. Thank God you are still alive to be paying your children school fees and other expenses as at when due. Nobody prays for bad things. But supposing you are dead today, what will be the fate of your children regarding their education. If couples that are both alive are struggling to pay the bills for their children’s education, will it be possible or easy for single parent to continue with the payment when the partner is dead? For people that don’t want their children to suffer any setback in their education, their safe net may be to buy a life insurance policy. This will guaranty the continuity of the education of their children if death should strike at any time.
- Spouse Welfare: It is a painful thing to lose one’s spouse. Apart from the pain and emotional trauma that such event causes the surviving spouse, it can also lead to a fall in the standard of living of the family especially if the dead spouse was the breadwinner of the family. One of the ways of reducing the pain of the sudden death of a spouse is by way of buying a life insurance policy that makes the spouse the beneficiary. If a person is covered against the financial loss the death of his/her spouse may cause, you will agree with me that the person may not feel too much burden. But this type of arrangement can only work where there is love and trust. The reason why some people will not buy life insurance policy is the fear that the spouse might kill him or her. Someone jokingly once told me that buying life insurance equates signing one’s death warrant. Well, I don’t believe this. Anybody that will kill you because of life insurance can also kill you for other reasons. As a husband, you can also insure your wife and make yourself the beneficiary. In most cases, we tend to undermine the roles a woman plays at home especially if she is not a working class. She may not be contributing money towards the upkeep of the children but she does may be much more valuable. Just imagine if your wife is not available. Who does the washing of clothes, dishes, house cleaning, food preparation and children welfare etc. Can you imagine how much you need to pay if you should hire someone to do all these chores? If you should place value on what your wife does at home, you may have a rethink about her worth. So, if you want to insure your wife, you should provide enough coverage. Life insurance allows that you insure another person that is separate from you. The only clause is that you should be able to demonstrate that you are dependent on the person and that the death of the person may may have adverse impact on you financially. Besides, since the policy will be in the name of the insured, the person must sign the policy. It may be impossible for you to do this without the knowledge of the person as you will need to provide medical records of the person.
- Debt settlement: If you have debt you are still servicing such as mortgage or other loans, life insurance policy can help you pay off the balance of the loan when you are dead. People buy financed properties on the assumption that their sources of income will continue to pay both the principal and the interest on the mortgage. But when a person dies, the source of income may die with the fellow. On this note, in an effort not to put the family in a bad position of inability to pay the loan balance, you can buy a life insurance policy. This will ensure that your family still has a shelter over their heads.
- Inheritance: Only few people see life insurance as part of their financial planning. It can also serve as part of the inheritance you are leaving for your children. This is even more relevant if you have inheritance that cannot go round all your children. While other children may get house as their own inheritance, you can name a particular child that couldn’t get a house as the beneficiary of the proceeds from your life insurance.
- Life insurance policy can also be used to pay any unpaid medical and funeral expenses. There are instances where a person will go through protracted illness before he finally dies thereby leaving huge medical bills behind for the children. Apart from medical bill, there are funeral expenses which must be paid. This type of situation can even lead to quarrel among the children as to how and who to settle the medical bills. This is common in polygamous families. For someone who doesn’t want family crisis, you can decide to shoulder all these responsibility by way of investing in life insurance.
- Payment of tax: Do you have properties that may attract large amount of estate tax when the ownership is transferred to the members of your family? If the estate tax is too high for them, they may not have option other than to sell off the property. To worsen the case, they may not get a good value for the property as they may be too in hurry to sell the it. Having a life insurance policy in place will help you pay such estate tax which may be otherwise too expensive for your children to bear.
- Charitable contribution: Do you have a course that you have interest in? You can demonstrate your commitment to such course by naming the charitable organisation that supports or promote such course as a beneficiary of your life insurance policy. So, life insurance is not only meant for married or people with dependants such as children or aged parents. If you don’t have any dependant, you can still buy life insurance and instruct your insurer that the proceeds be paid to the charitable organisation of your interest.
- Protected insurability: One of the benefits of buying life insurance early is the assurance that you are insurable even if you later have a health challenge. Many people make the mistake of waiting till the time their heath is threatened before they realise that they actually need the insurance. At that time, insurance companies may not be willing to sign them up.
- Business purposes: The purpose of life insurance is not limited to personal financial planning. Gradually, people are extending it to cover business matters. For example, companies are introducing life insurance as part of their employees’ packages. In fact, this is a good way of keeping good employees within a company. If you are an employer and you have a talent that you don’t want to lose, you can buy life insurance for him. On the other hand hand, if you are an employee and you enjoy this type of package, it is advisable that you still buy your own personal life insurance policy. The reason being that, the day you leave the organisation is the very day you lose the life insurance benefits. Still on the business reasons for life insurance. If you run a business in partnership, each partner can decide to insure themselves by making the other partner a beneficiary. This will ensure that the death of a partner does not mean the end of the business.
- Family Business: Possibly you have a business which you want to hand over to your children who may not have enough financial capacity to grow or expand, you can buy life insurance policy for the purpose.
Despite all the importance of life insurance listed above, you will still discover that some people don’t see any reason to make it part of their personal financial planning. Instead, they will give you different reasons why they don’t need it. The low income earners may argue that is is too expensive for them, But if you find out how much they spend on telephone calls every month, you will be amazed. It is just about the issue of priority. I think that the assurance that your children will not suffer in case you die should be enough motivation for someone to buy life insurance policy. You will think that the low income earners have enough justification not to buy life insurance. The truth is that, it is not about earnings; it is about our attitude to life insurance. Some high income earners will tell you that they don’t need it either. They will tell you that they have enough investment assets for their children. The problem with this type of investment is that you are not sure about their performance especially if they are paper assets such as stocks. Even, the estate tax on property may be too expensive for the children to pay. That is why life insurance is good to compliment whatever investments that one has made for his children.