No matter who you are, what you do or where you’re from, it’s almost certain the topic of life insurance will come up at some point.
Some people will tell you that having cover is a necessity, others would say it’s a waste of money. So what’s the solution? Well, before you make any decisions, you need to weigh up the reasons why and why you shouldn’t buy life insurance.
Why you should buy life insurance
Your needs for life insurance can change throughout your life. You may not need as much cover when you’re only young, but as you progress through life, the responsibilities only keep coming. Buying a home, getting married, and of course, having kids are some major life events that can kick-start the need for life cover.
Here are just some of the ways owning cover can be of benefit to you and your loved ones.
It can cover debts after your death
Many of us rack up debts during our lives, the problem is, they don’t just disappear into thin air when you die. Usually, any debts are paid for using any money or property left in the estate. If you don’t have any money in your estate, or you have no immediate family, then the debt could go unpaid.
Individual debts, like credit card debt, are typically left with the deceased. Whereas a joint debt like a mortgage will become the responsibility of any co-signers.
Let’s say you took out a joint mortgage with your spouse, and you pass away before it’s paid off, then your spouse will be left with the burden of paying off the mortgage on their own. If they can’t afford payments, they may be forced to sell the home, and may have to downsize.
If you owned life insurance, your spouse or significant other could use the money paid out to cover such payments. There are even policies designed to cover debts like a mortgage, such as decreasing life insurance. Your mortgage can be linked to the policy, so the cover amount reduces as you make repayments.
It can help pay for funeral costs
It’s always upsetting to lose someone, but it can also be expensive. According to Money Helper – the average cost of a basic burial on average can cost around £4,794. While a direct cremation can cost around £1,511.
Funeral plans are a popular option for those who wish to divert the financial burden away from their loved ones when they pass away. Without one, your family could be left to foot the bill, which as we’ve just mentioned can be significant.
While a funeral plan can be handy, it’s usually just for covering the funeral and any related expenses. It won’t help non-related expenses such as your family’s ongoing living expenses. This is where life insurance could be a more valuable alternative, as it’s more flexible when it comes to how the money can be used.
With the right amount of cover, you could help your family cover funeral costs, as well as any living expenses they may have after you’re gone. So not only do you get funeral cover, you also provide financial support for your family during a difficult time.
It can help replace lost income
A death isn’t just emotionally devastating, it can also be so financially, especially if it’s the main earner of the household. Let’s look at two possible scenarios:
Say you’re a single parent, what would happen if you suddenly died and had no savings to leave your children? Chances are you have a close relative such as a parent or sibling who can look after your kids, but who’s to say they can afford to take on the financial responsibility?
Or what if your spouse depends on you to provide for costs like a mortgage or bills? Without your income, they may struggle to make ends meet, and have to go without things they need or want, or may even have to sell assets like a car or home.
In both scenarios, having life insurance can make a real difference to your loved ones. In the first scenario, for example, your children’s guardian could use the money from the payout to raise your children, using it to cover various costs as they grow up. Or they put the money into savings for your kids to use when they’re old enough.
And in the second scenario, your spouse/partner could use the money to cover bills and other living expenses until they are able to find another source of income. You can provide them with some much-needed financial stability during a difficult time.
It’s because of this, that life insurance isn’t needed for everyone, such as in the situations listed below.
Why you shouldn’t buy life insurance
No doubt, life insurance can be useful in certain situations, but that doesn’t mean it’s right for everyone. It’s safe to say it’s not a one-size-fits-all, rather it’s suited to some situations over others. After all, we all have different paths to follow, some people want to have the whole family package, others prefer to live their life, their way.
It can be expensive
Bills, bills, bills. If there’s one thing we could do without, it’s another bill! That’s not to say life insurance is expensive for all, but rather depending on your circumstances. It’s true, cover can cost more as you get older, largely due to the increased chances of developing health problems as well as the fact you are getting closer (however slightly) to death.
When you take out a life insurance policy, you’ll have to pay a premium to your insurer, either monthly or annually. Insurers will take factors like your age, health and medical history into account, as well as other aspects such as the amount of cover and the type of policy.
Whole life insurance, which intends to cover you right up until you die, can be more expensive than term life insurance, which covers you for a specified number of years. For context, a quote for whole life insurance if you’re in your 40s with a health condition is likely going to cost more than if you want term life insurance in your 20s with perfect health.
There are a number of ways to save money on cover. The real trick is to buy at the right time and make sure you have the appropriate type and amount of life insurance. Otherwise, you could be spending more money than you have to on cover that is either too much or too little to what you need.
You have enough savings
Save it for a rainy day – an expression you’re bound to have heard at some point. A ‘rainy day’ could mean anything, but usually it refers to an unexpected scenario where it could cost you a significant amount of money. This could be your car breaking down, unexpected house repairs, or even death.
Sadly, that rainy day could be just around the corner – one of the worst aspects about death is not knowing where and when it’ll happen. Life insurance may seem like the logical solution, but it may not be needed if you have enough savings set aside.
Instead of a payout, your family can simply use the money you’ve saved over the years towards covering the lost income. Of course, if you have a small amount of savings it’s probably best to take out life insurance instead, but if you feel there’s another to cover your expenses, then it may not be necessary.
You are single and have no children
Family, such as children, spouses, are what could be described as financial dependents. People who either depend on you financially or who you feel should benefit from your death. But not everyone has children or even close family, tragic as it sounds, some people either prefer to live a different life, either because of circumstances or choice.
If you’re in this situation, then you likely don’t need life insurance, as it makes little sense if you have no one to benefit from your passing. That doesn’t rule it out for definitive, though, you may need it later down the line, if you get married or have kids. As the cost of cover is often cheaper when you are young, buying cover early could actually save you money in the long run.
Hopefully, by now, you have a decent indication whether you need cover or not. If you’re still not sure, it’s best to do some further research and speak to someone like a financial advisor who can help you determine the best course of action.
