Why is Spending on Life Insurance Coverage Worth It? A Complete Guide 2023
While we can never predict the future, that doesn’t mean we can’t plan for it. One responsible way to financially plan is by having life insurance coverage. This provides a safety net for your loved ones when you pass away.
While the benefits of life insurance are clear, you’ll still need to pay a premium. This leads many to wonder whether spending on life insurance coverage is worth it. In this life insurance coverage guide, we’ll look at why it can be a good idea.
Understanding Life Insurance
In legal terms, life insurance is a contract between the policyholder and the insurance company that, if the conditions are met, will mean a lump sum is given to the beneficiaries.
There are a few different types of life insurance but they all follow those basic rules. Life insurance is important to cover the financial loss that comes following a death. It allows a family to grieve without worrying about their financial future.
Importance of Life Insurance Coverage
Should you be spending money on life insurance coverage? Even if you’re young, it makes a lot of sense. We alluded to its importance above but exactly why should you spend on life insurance? Let’s look at some of the life insurance coverage benefits.
Financial Security for Your Loved Ones – The biggest reason that most people pay for life insurance is to provide financial security to their families. This helps to prevent families from having financial hardships on top of their grief.
Debt Repayment – Contrary to popular belief, debts don’t die with you if they are either in joint names or can be paid from your estate. Having life insurance can ensure that any debt payments are repaid in full, this can be especially important for a mortgage.
Education Expenses – Are your children in paid education or do you hope they will be in the future? If so, life insurance can help to ensure they have the education they deserve should you pass away.
Funeral and Burial Costs – Funerals are expensive and unfortunately they can place many families in immediate debt. Life insurance can help to cover this cost so your family doesn’t need to pay out of their own pocket.
Types of Life Insurance Policies
If you’re happy to pay for life insurance, then it’s important to know that there are a few types available. These can be divided into whole life insurance and term life insurance, so let’s look at them in more detail.
Term Life Insurance Coverage – Term life insurance will cover you for a specified period. Commonly this will be anywhere between 10 and 30 years. This is usually the cheapest type of life cover as when the term expires, you’ll no longer be covered.
Whole Life Insurance Coverage – Whole life insurance will cover you until you die. On top of this, there is also a cash value component that grows over time which can be withdrawn. There are also other types of whole life cover such as universal life insurance, which is a little more flexible.
Life Insurance Coverage Guide
For the correct life insurance financial security, you’ll need to assess your life insurance coverage needs. This is how much will be paid out once you die. A general rule is that the higher the coverage, the more you’ll pay in premiums.
Due to this, it’s important to carefully work out the coverage amount you need. To do that, here is what you need to consider:
Income Replacement – How important is your income to the running of the household? If it’s vital then you’ll need life insurance to cover at least a few years of you not being there to give that financial support.
Outstanding Debts – Added to your coverage thinking is what are your debts and do they need to be covered. This includes mortgage, loans, and credit card debts, etc.
Future Expenses – Are there any future expenses you were hoping to contribute to? This could be giving your children a deposit for their own home, supporting their education, or any other financial need.
Funeral Expenses – Do you want a simple funeral or something more elaborate? Whatever the answer, you should factor this into the coverage you need.
Once you have those answers, then you can start to build a clearer picture of what your life insurance should be. While ideally you’ll want as much coverage as possible, you need to balance that with how much you can afford.
A common question we see is ‘Why is my life insurance premium is more than coverage?’ but this is usually a simple miscommunication. Coverage amounts will always far exceed any premium paid as otherwise there would be no point in getting life insurance.
Final Thoughts
Sadly death can come at any time and it’s important to be as prepared as possible. Getting life insurance at any age can be a good idea for a wide range of reasons. This is especially true as life insurance is generally cheaper the younger you are.
If you’re interested in getting financial protection for your family, then get in contact with Ron Johnston Insurance today. We’ll be happy to guide you through the process and answer any questions that you may have.