As human beings, there is one thing that we are 100% sure of; it’s the boringly monotonous fact that everyone around us will die someday.
Also, it is clear that death does not segregate when it comes to age or financial status.
It does not matter how old you are or financial status you are in. Making a financial life plan for yourself and for the people you love is an important thing to-do.
Financial planning is one of the most important aspects of your money.
One of the best ways to plan financially for your future and for the future of people you love is to purchase a life insurance plan.
Upon death of the insured person, the insurance company will provide the insured family with a lump sum payment known as death benefit which will go to his listed beneficiaries.
Insurance is a product designed to provide you a measure of protection at least financially should a disaster happen.
When you are employed and earning some income, automatically your income protects and takes care of your family.
What happens when you stop working or you are dead?
What is a life insurance policy?
Life insurance policy is an insurance product specifically designed to protect your beneficiaries financially should you pass away one day.
It is a contract between an insurer and a policy holder in which the insurer guarantees payment of death benefit to the named beneficiaries upon the death of the insured.
You pay a sum of money called the premium to the insurer and when you pass away, your beneficiaries, usually your family members get a lump sum payment called the death benefit.
Life insurance is your safety blanket helping you prepare for the unexpected. No matter what happens you can still sleep because your loved ones are already protected.
Purchasing the insurance cover is as if you are buying a peace of mind knowing that your family will be Financially secure should anything happen to you.
Which type is best for you?
There are many different types of life insurance. If you really need to group them, you can categorize them into two primary types.
Term insurance lasts for a specified period of time say 5, 10 or 20 years. The shorter the period of time a policy lasts, the lower the premium.
Once the term period is over, you will have to pay a considerably higher price to maintain it afresh. You may as well have to take another insurance assessment to qualify all over again.
Permanent insurance is what the name implies; it’s a cover that will leave with you for life. No matter how old you will be when you die.
The premium is projected to remain level over your lifetime.
In some cases, it can be designed to stop at retirement while your coverage remains in force for life.
Should you buy life insurance?
You should buy life insurance because you have those many peoples’ lives that you need to protect and impact.
Life insurance is very important to everyone with a dependent.
You should buy life insurance if you have anyone who may depend on you for financial support e.g., kids or elderly parents.
If you don’t have anybody whom to support financially, then life insurance is not necessary.
Life insurance as a product has been created for two particular reasons:
- To protect all the people that are left behind when you are dead
- To protect your income in the event that you pass away.
If your income stops, life insurance is a very useful tool that can protect and replace your economic value when you are gone and can’t work anymore.
When is the best time to buy life insurance?
The perfect time to buy life insurance is when you are young and healthy. But this does not mean that old people can’t buy life insurance.
You can as well buy life insurance cover for yourself regardless of your age bracket.
When buying the policy, one of the most important aspects is to understand the purpose of insurance cover.
You will make a payment called premium based on the amount of coverage you require.
In return, the insurer company will then cover your life against the perceived risk.
This perceived risk will depend on a lot of factors such as;
- Medical health conditions
- Smoking habits
- Occupation etc
The higher the perceived risk the more expensive the premium gets.
One of the biggest mistakes many people make is underestimating how long they need life insurance.
How much life insurance do you need to buy?
There are 2 fundamental considerations that go into answering this question
- How long you will need the insurance
- How much money you have in your budget for this expense
The how long you need question will help you decide if you want term insurance or permanent insurance.
For how much you need question, the general rule of thumb when determining the amount of insurance cover is 10 times of your annual income.
The simplest way to determine how much life insurance you need is to sit down with a financial advisor.
The insurance professional will conduct what is called a financial needs analysis.
They will tell you which insurance to buy, how much to buy and when to buy.
The purchase of life insurance can be one of the most important decisions you can ever make in your financial life.
The insurance cover fills the financial gap that exists between your financial needs and your financial reality.
It is an extension of your love to your loved ones by making sure that they are provided for when they need it most.
This lump sum of money can be used to pay off your mortgage loan when you die or lose your income before it is repaid in full or will cater for your family’s expenses.
In most jurisdictions, this sum of money is being protected from insured creditors.
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