Heaven forbid
Most of us can remember the days when insurance salesmen used to use the corny phrase that was designed to strike fear and trepidation in the minds of their clients. Heaven forbid that you leave your wife and children destitute and defenseless. A lot has changed since then…not least of all the “poor wife” who, these days, is more than capable of looking after herself.
It is true that these days it is more than likely that both husband and wife (or husband and husband, wife and wife or even they/them) are now contributors to the overall family/household budget. So what has changed? Well, not the “heaven forbid” but rather that both parties contributing to a joint income now require life cover where there is a household and (heaven forbid) minor children.
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
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.
What types of life insurance are there?
There are three main types:
1. Term life insurance policies
Not all insurers offer this type of life cover any longer. However, under the right circumstances, a term life cover is a good option. 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.
What types of life insurance are there?
There are three main types:
1. Term life insurance policies
Not all insurers offer this type of life cover any longer. However, under the right circumstances, a term life cover is a good option. 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.
2. 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, Estate duties, tax, covering a home loan and can be used in business as the foundation of a partnership agreement.
3. Joint life cover
If you have a family, life cover is essential to provide for them if something happens to you. Where affordability is a consideration, rather than leaving one partner uninsured, a joint life policy could be an option. Joint life insurance allows you and your partner to be covered by a single policy with the same terms and conditions and will be paid out when one partner passes away.
The best way to decide if a joint cover policy is right for you is to look at whether it would meet your requirements.
It is most suited to nuclear families, where both partners contribute income to the household. If a partner passes away, their spouse and children can be financially secure, even though an in-come will be lost. Having joint cover has several benefits. It is paid out irrespective of which spouse or partner dies; it is usually cheaper than having to pay for two individual life insurance policies; joint cover leaves the family more secure than if just one spouse was covered; and stay-at-home mums and dads can be covered too, which means that extra burdens like childcare costs are covered should they pass away.
However, if you are considering a joint life policy, make sure you understand
They’re often used to help towards a funeral, Estate duties, tax, covering a home loan and can be used in business as the foundation of a partnership agreement.
3. Joint life cover
If you have a family, life cover is essential to provide for them if something happens to you. Where affordability is a consideration, rather than leaving one partner uninsured, a joint life policy could be an option. Joint life insurance allows you and your partner to be covered by a single policy with the same terms and conditions and will be paid out when one partner passes away.
The best way to decide if a joint cover policy is right for you is to look at whether it would meet your requirements.
It is most suited to nuclear families, where both partners contribute income to the household. If a partner passes away, their spouse and children can be financially secure, even though an in-come will be lost. Having joint cover has several benefits. It is paid out irrespective of which spouse or partner dies; it is usually cheaper than having to pay for two individual life insurance policies; joint cover leaves the family more secure than if just one spouse was covered; and stay-at-home mums and dads can be covered too, which means that extra burdens like childcare costs are covered should they pass away.
However, if you are considering a joint life policy, make sure you understand
when the policies pay out. A “first death” policy would be paid out once either of the policyholders die. This could be useful in the case of settling debt or providing for children’s educational needs.
A “second death” policy only pays out when both policyholders have passed away. Because it only pays out on the second death, lowering the probability of a payout in the early years, this policy may be cheaper. However, it may leave the surviving spouse and family with no payout for debts or the cost of raising children. Make sure you choose wisely based on the needs of your family. If both spouses die at the same time, the payout becomes part of the estate. Policyholders (with the assistance of a legal profession-al) have the option to have their policy written “in trust”, which ensures that money is put into a trust fund that is tax-free.
When choosing a joint life policy the following should be considered:
• In the case of a “first death policy”, the remaining partner would no long-er be covered by the policy. As life insurance premiums increase with age, the surviving partner may find that life cover has become unaffordable or may have developed a health condition, making it difficult to get cover.
• The policy cannot be divided up in the case of divorce or separation. If one partner decides to not pay their half, the policy will cease to exist unless the other partner decides to take it over
A “second death” policy only pays out when both policyholders have passed away. Because it only pays out on the second death, lowering the probability of a payout in the early years, this policy may be cheaper. However, it may leave the surviving spouse and family with no payout for debts or the cost of raising children. Make sure you choose wisely based on the needs of your family. If both spouses die at the same time, the payout becomes part of the estate. Policyholders (with the assistance of a legal profession-al) have the option to have their policy written “in trust”, which ensures that money is put into a trust fund that is tax-free.
When choosing a joint life policy the following should be considered:
• In the case of a “first death policy”, the remaining partner would no long-er be covered by the policy. As life insurance premiums increase with age, the surviving partner may find that life cover has become unaffordable or may have developed a health condition, making it difficult to get cover.
• The policy cannot be divided up in the case of divorce or separation. If one partner decides to not pay their half, the policy will cease to exist unless the other partner decides to take it over
and asks for a change in beneficiary and updates the terms of their will. This decision can be made based on the primary caregiver or financial provider of shared minor children.
Do you need life insurance?
Life insurance pays out when you die – not when you lose an income due to illness or disability.
It’s suitable for you if you have:
- dependants, such as school-age children
- a partner who relies on your income, or
- a family living in a house with a home loan that you pay – a life insurance policy can provide for them if you die.
- You might also want a policy that covers your funeral expenses.
What is the cost of life insurance?
The cost varies, depending on a number of factors. But life insurance is generally considered to be good value.
A policy giving your loved ones a decent amount of financial protection can be a low cost solution for peace of mind and financial planning
Your monthly payments will depend on things such as:
• your age
• your health
• your lifestyle
• whether you smoke
• your family medical history
• the term of the policy
• your occupation – a high-risk job might push your premiums up.
The price is also affected by the level of cover you buy. The amount of cover you need will depend on:
• Your current and future debts
• mortgage/rent
• number of dependents
• take-home pay or income from other sources.
Your monthly payments will depend on things such as:
• your age
• your health
• your lifestyle
• whether you smoke
• your family medical history
• the term of the policy
• your occupation – a high-risk job might push your premiums up.
The price is also affected by the level of cover you buy. The amount of cover you need will depend on:
• Your current and future debts
• mortgage/rent
• number of dependents
• take-home pay or income from other sources.