What Is Life Insurance In 2023?: Who Needs Life Insurance?

WHAT IS LIFE INSURANCE?

Life insurance is designed to reassure you that your dependants, such as your children or a partner, will be financially looked after in the event of your death. There are several things to think about when buying it, such as the type of policy you want, when you need it and how to buy it.

HOW DOES LIFE INSURANCE WORK?

Life insurance pays out either a lump sum or regular payments on your death, giving your dependants financial support after you’ve gone.

The amount of money paid out depends on the level of cover you buy.

You decide how it’s paid out and whether it will cover specific payments – such as mortgage or rent – or if it’s to leave your family with an inheritance.

READ ALSO: Who is an Insurance Broker?

WHAT TYPES OF LIFE INSURANCE ARE THERE?

There are two main types:

TERM LIFE INSURANCE POLICIES

These run for a fixed period of time, known as the ‘term’ of your policy, such as five, ten or 25 years. They only pay out if you die during the policy.

There are three kinds of term life policies.

Level – pays as a lump sum if you die within the agreed term. The level of cover stays the same throughout. This is the most simple and affordable option.

Decreasing – the level of cover reduces each year. It’s designed to be used with repayment mortgages, where the outstanding loan decreases over time.

Increasing – the level of cover rises over the term of the policy, to keep up with inflation.

WHOLE OF LIFE INSURANCE POLICIES

These pay out no matter when you die, as long as you keep up with your premium payments.

They’re often used to help towards a funeral or for Inheritance Tax planning.

However, they’re typically more expensive than shorter-term policies. There’s also a possibility that if you live longer than you expected, you could end up paying more in than you’ll get out.

WHOSE LIFE ARE YOU COVERING?

You can choose a joint policy or a single one.

If you take out joint life insurance, the money will go to the surviving policyholder – such as your spouse. This is unless you made alternative arrangements.

If you take out single life insurance, the money goes into your estate. So you need to decide who it goes to when you die.

A joint life policy is usually more affordable than two separate single policies. However, joint life cover only pays out on the first death. Whereas buying two single policies would make sure there’s a pay out on each death.

READ ALSO: 10 Key Reasons Why A Person Needs Life Insurance

WHO NEEDS LIFE INSURANCE?

Life insurance policies have become cliche within the crime-drama genre on television. Everyone has seen a show in which a victim is killed by someone wishing to collect on a life insurance policy. 

If you take these shows seriously, you might come to the conclusion that it's safer not to take out a life insurance policy. For many survivors, however, life insurance policies makes life easier. Do you need to consider getting a policy?

PARENTS WITH CHILDREN STILL AT HOME

Parents with children still living at home are the most obvious group of individuals in need of life insurance. If you suddenly die how will your kids be provided for. A life insurance policy can help a surviving parent raise children, and it can also provide security for children whose parents pass away at the same time.

COUPLES WITHOUT KIDS

If you live in a dual-income household, you and your partner need to have life insurance that will cover expenses and lost income in the event of death. When choosing a policy, select a plan that will help pay the mortgage and combine with the remaining partner's income to pay monthly bills. Remember to also calculate funeral expenses into the equation.

YOUNG SINGLES

Young people tend to avoid thinking about their own demise, but planning ahead can save your family and loved ones a lot of pain and hassle. Most singles should get an insurance policy that will at least cover the costs of funeral and burial. In the event of an untimely death, this helps to take pressure off grieving loved ones. Singles with loans that have been co-signed by others also need to consider this debt when considering life insurance. If you die and leave a debt that your parents or another person has cosigned, that debt reverts to them. A life insurance policy can help you make sure those debts don't become a burden for someone else once you are gone. Young singles also need to consider the future before choosing not to get an insurance policy. While it might not seem important to purchase such a policy today, getting a policy when you are young may be more affordable that purchasing a new policy once you have aged or been diagnosed with an illness.

READ ALSO: How Do Life Insurance Companies Make Money?

THE ELDERLY

Elderly people should also have at least a minimum insurance policy. Even those with savings and investments that should pay out to heirs, need to be prepared in the event that healthcare and hospice expenses bleed those resources dry. An insurance plan that covers average funeral expenses will ensure that your heirs aren't put through hardships when it comes time to make final arrangements.

Most adults can benefit from some form of insurance policy. The type of policy that is best for you will depend on your age, income, debt, and number of dependents. Don't risk leaving your loved ones in financial distress after you have gone. Plan for their future well being today.