It’s fun thinking about all the amazing things we want to do in life. But as much as we avoid the subject, accidents happen every day and can quickly end our plans.
For our cars we must have car insurance to cover bumps and crashes; for our houses buildings insurance helps address the risk that our homes may go up in smoke, or collapse to the ground. But what about our life itself? Is life insurance a good idea?
No one likes to think about their own death. Our eventual death is hopefully a long time in the future, but for some unlucky people, life can be cut short.
Life insurance is shunned by some people because they view it as expensive or unnecessary. But for the majority of us, it doesn’t have to be expensive and it’s likely to be one of the most financially responsible things you do.
What Kind of Life Insurance?
The cheapest and best type of life insurance is called ‘term insurance’ -where you pay a fixed amount every month for a fixed ‘term’ -typically 20 or 30 years. The point of life insurance is to help support your family should you die during the term period. Having it in place means you won’t leave your family in financial trouble if you’re no longer around. Whilst it’s not compulsory for everyone, you must have life insurance if you have a mortgage as the bank will require you to pay off the amount you owe them, regardless of whether you’re around to pay the bills.
Do I Need Life Insurance?
If you don’t have anyone relying on you to provide for them, and you don’t have a mortgage then life insurance makes less sense for you. If you die tomorrow it would be a terrible tragedy but no-one is going to go hungry. However, if you are planning on taking out a mortgage in the near future or have a family relying on you as a breadwinner then life insurance should definitely be on your financial to-do list.
How much does it cost?
The monthly cost depends on the size of the policy –the amount of money your estate would receive should you die during the term period- but most polices are not more than a few pounds a month. Typically you should take out enough to cover any mortgage + several years of your salary -some financial advisers recommend 10 years worth but you should decide yourself how much cover you want to take out. As for the length of the term, many people choose a time frame that takes them to an age in their life when they will not need coverage -when they think their children will have moved out or when they will have paid off their mortgage.
You might not know the exact amount of coverage you need just now but it’s worth getting something in place. Accidents can happen at any time so it’s worth looking into term insurance to make sure money is not a worry for the people you leave behind should the worst happen. The best part is once it’s in place, you can go back to thinking about more fun things, safe in the knowledge you’ve got things covered.
Full disclosure: As a single 20 something renter with no dependants I have no need for life insurance but I do have a small policy provided as a benefit by my employer. If your situation is different to mine then I hope this article has been food for thought.