Life insurance is something that most of us need. However, unfortunately, when it comes to putting some in place most of us are ‘sold’ a policy as opposed to ‘buying’ a policy.
If protection is worked out logically and is designed so that it covers your liabilities in line with the rest of your financial position, the chances are that it won’t be expensive and will 100% serve the purpose.
Most people have slightly different situations so there is no one size fits all method of calculation, however, lets look at some of the things that you may want to start with:
- Debt. If the worst happened you would not want to leave a bill behind. Therefore, mortgages or any other form of debt should be covered.
- Children. They are likely to live on after you and will need to be raised. The cost of this may need to be considered. Further, some people like to leave a ‘higher education fund’ for them or perhaps help to get on the property ladder etc.
- Home. Your family will need somewhere to live if you don’t have one already.
- Spouse Income either during working life or at retirement. This is hotly debated and everybody will have a different situation. However, you can chose whether you wish to pay your spouse an income or whether you wish to leave a lump for sum for him/her to use as they wish.
- Repatriation and Funeral Costs. Depending upon your culture, traditions and place of residence these will be different, however, it is something to consider.
- Estate Taxes. This will not be applicable to all nationalities but will definitely be for some. If possible, protection should be written into trust so that it does not increase estate taxation. This can usually be done easily and for free.
Reasons to Buy Life Insurance
As I grew older, got married, started a family, and began a business, I realised that life insurance was indispensable and fundamental to a sound financial plan. Over the years, life insurance has given me peace of mind knowing that money would be available to protect my family and estate in a number of ways.
How Much, Therefore, Should You Have?
In order to get to this, think of the above and ask yourself the question; ‘if I had not made it home last night what would have been the financial impact today?’.
This is generally going to boil down to ‘term assurance’ or ‘whole of life insurance’. They are quite different and a good advisor can talk through the pros and cons of each. The main point is to have life cover, but there are options for achieving this and, as advisors, are job is to help you understand these and what best fits your requirements.
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