Giving peace of mind: Understanding life insurance | The Daily Star
12:00 AM, September 12, 2017 / LAST MODIFIED: 12:00 AM, September 12, 2017

perspective

Giving peace of mind: Understanding life insurance

Protection is one of the greatest gifts you can give your family. No one likes to think about a time when he/she is not around, but it is important to plan for how your loved ones would cope if you were not there to provide for them.

Not only does life insurance offer the peace of mind of knowing your family would be alright, but policies can also help with saving for retirement and even paying medical bills, making it an important financial asset to have.

Who needs life insurance?

Life insurance may not be the top priority for most, but it is important to think about taking out cover if you have people who are dependent on your income, such as young children or a spouse who does not have regular income. Consider whether these people would be able to manage if you were not there to provide for them. If you have a substantial amount of savings, you may not need life insurance, but if it is unlikely your family would be able to support themselves without you, it is a good idea to think about taking out cover.

You may also want to consider a life insurance policy if you owe money, such as a mortgage or car loan. Unfortunately, if something happens to you, any debts you have will still have to be repaid and a life insurance policy can be used to cover these.

How much do I need?

Working out how much cover you need can be a bit tricky and it may be a good idea to get some professional advice. As a general rule, think about how much money your family would need to live off if you were not there. Next, think about for how long they would need that support.

If you have young children, you may want to take out life insurance that would provide your wife with an income until they had finished their education. In which case, simply multiply the annual amount you think your family would need by the number of years for which they would be likely to require it. This calculation gives you the lump sum for which you should be insured.

Alternatively, you may decide to take out cover to replace your income for a set period, such as five years, to give your family time to adapt without having to worry about money.

If you owe money, you may consider a life insurance policy with a value and term that matches the debt.

Whatever you decide, it is important that the premiums are affordable, as if you cannot pay your premium regularly, the policy will no longer be valid.

How does life insurance work?

There are many different life insurance products available. The basic type is a term life insurance policy. This policy is taken out over a set period of time, such as 10 or 20 years, and pays out a lump sum to the family of the policyholder if he/she dies during the policy term. These policies tend to have the lowest premiums, but they do not offer additional benefits.

Another type of policy is known as permanent life insurance, which not only provides a lump sum when you die, but also helps you plan for retirement by paying out a pension after a set period of time. An endowment life insurance policy is similar, but pays out a lump sum at the end of the term, rather than a regular income.

Some policies combine life insurance with other forms of protection. For example, MetLife's Critical Illness Insurance with Return of Premium Super (CI ROP Super) provides life insurance, but also gives you a lump sum if you are diagnosed with, or have undergone a surgery for 10 critical illnesses, helping to cover medical bills. If during the policy term you have not made a claim on your policy, 100 percent of the premium you have paid are refunded after the term expires.

How much does it cost?

The cost of life insurance typically varies from person to person, depending on a number of factors, such as how old they are, whether they have any existing health conditions, and for how long the cover will be in place. You generally pay for life insurance in periodic instalments for the entire length of the policy, although some policies do have the option to pay a one-off lump sum. Premiums are set when you first take out the product, and as a result, it is often cheaper if you start a policy when you are younger. It is important to see the policy as a regular commitment, as if you stop paying the premiums you will no longer be covered.

Life insurance forms the cornerstone of good financial planning, so take the time to think about your family's needs and consider talking to a professional advisor to help you get it right.

 

Photo: Collected

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