6 reasons why life insurance is essential

It’s important to have a secure financial plan to ensure the well-being and stability of your family, even when you’re no longer there. Life insurance gives you the ability to look after your loved ones if something should happen to you.

No matter how well you’ve planned your future, death and disability have no respect for our calendars, life goals or vision boards. Tragedy can strike at any time, and you don’t want yourself or those you love to be stuck in a difficult financial situation.

Although the terms and technical details can make it intimidating to compare the products available, life cover is an important part of your insurance portfolio, so you should take the time to understand the different options available.

3 types of life insurance

There are 3 different types of life insurance. You can decide which one suits your needs best by weighing up the terms of each against your preferences, lifestyle and financial resources.

1. Whole-life insurance

Whole life insurance offers indefinite cover, meaning that it will cover the whole term of your life or until you decide to cancel your policy.

2. Loan protection insurance

Loan protection insurance covers a specific amount that decreases over time. For example, if you take out a personal loan, loan protection insurance will cover the outstanding balance of your loan should you pass away, become disabled or be diagnosed with a dread disease and no longer be able to pay your instalments. These policies normally pay your creditors directly. Or you can choose to take out life insurance that will pay out to your estate, which your executor will then use to pay off any debts before distributing the remaining money to your heirs.

3. Term insurance

Term insurance covers you for a specific period. With this kind of insurance, you will have cover from the start of the policy until the term ends. Once the policy reaches its end date, it will be terminated.

Why life insurance should be part of your budget

1.  It protects those you leave behind

Life insurance is a way to ensure that your family is provided for when you are no longer around, which is especially important if you have children or other dependants. Proper life insurance can secure your loved ones’ financial needs, from day-to-day expenses to long-term investments, and will spare them added financial stress while they’re grieving.

2.  It leaves a legacy for your heirs

Even if you have no other assets to pass on, life insurance can create an inheritance to leave to your family. When you take out life insurance, you can nominate beneficiaries and divide the money between them to ensure that all of them are financially more secure. You can also have the money paid into a trust to take care of your children’s education or leave the money to your nearest and dearest as capital to start a business to support the family.

3.  It can help pay off debt

Your estate can use part of your life insurance cover to pay outstanding debts, whether they’re store accounts, personal loans and credit cards, or home loans and vehicle finance. This is especially helpful if you don’t have loan protection insurance. Being able to pay off the loan right away will allow your heirs to remain in possession of the home or car. If you don’t have a funeral plan, your family may need to borrow money to arrange your funeral. Although life insurance takes a little longer to pay out than funeral cover, your life insurance can still help your loved ones settle funeral debt faster.

4.  You can make your retirement more comfortable

Term insurance generally has lower premiums than whole-life insurance, freeing up more money to invest towards your retirement. Some insurance policies also offer annual payouts, which you can add to your retirement investments.

5.  It protects your business

Life insurance isn’t there only to protect your family. Policies like key-person insurance, for example, cover the life of anyone who’s essential to the running of your business. Should you die unexpectedly, your business partners can use this cover to buy out your shares at a predetermined price without any fuss so that the proceeds can be added to your estate and paid to your heirs.

6.  You can get cover for disability and critical illness

Some life insurance offers cover for disability and critical illnesses, which means that should you become disabled or be diagnosed with a dread disease that leaves you unable to work, you’ll still receive an income. Be sure to discuss this with your financial advisor to ensure that your cover includes everything that you need.

If you’re ready to explore your life insurance options, contact us today.