Why is Life Insurance Important? : Life insurance seems like a funny term for something that is paid out when you die. Until we consider our own mortality, purchasing life insurance doesn’t seem that important.
However, when you consider that less than half of Americans don’t have life insurance, the need for education on the topic becomes clear. It’s not a subject taught at school, yet it is something we should learn about.
So, firstly:
What is Life Insurance?
It is a financial contract that you make to ensure that money is left to your loved ones when you die. For instance, it might be enough to cover the mortgage on the family home or replace the income you might make to support them. This contract is made with an insurance provider, who commit to paying out in the event of your death.
It was originally invented to cover burial costs and provide care for widows or orphans. Now it has developed into a more sophisticated product.
Of course this doesn’t come for free. You must pay a monthly premium for a certain amount of time to ensure this payment happens on your demise. Certain conditions must also be met.
What types of life insurance are available?
There isn’t just a straightforward ‘one-fits-all’ approach with life insurance. You need to research the options and see what’s best for you.
There are two main types, but these can also split into further categories. To simplify it, consider
- Term life insurance
- Whole life insurance
Term life insurance quotes applies to the agreed length that you will pay your premiums. This could be 10 – 30 years and it will help your loved ones with any financial obligations that they have after your death. It is very popular, affordable and easy to set up.
What does term life insurance cover? Generally term life insurance will offer protection and pay-out for the following:
- Funeral expenses
- Day-to-day household costs for your family members
- Childcare
- Mortgage payments
- College tuition
- Debts such as personal or car loans or medical bills
In contrast, whole life insurance lasts your whole life and is generally more expensive. It has a cash value and can be borrowed against. It will be paid out whenever your life ends, there is no fixed term.
What factors are important to include in your application?
When applying for life insurance, you need to be as thorough as possible. It’s important to realize that mistakes can be costly – leading to your claim being rejected.
Here are some of the things that you need to include:
- Your detailed medical history
Even if you have recovered from an illness, put it on the form. There is a long list of medical conditions that you will be asked about, and you need to insert the symptoms, date, diagnosis and how you were treated. Some you may not even think about that you should put down are:
- A previous anorexia or bulimia issue
- Chronic headaches
- Anemia
- High blood pressure
- Ulcer
- Any problems with your ears, nose and throat
- Optical issues
Then you need to address your family’s medical history. This can be an indicator of hereditary conditions. Check if your parents or direct family members have been diagnosed with:
- Diabetes
- Kidney disease
- Heart disease
- Cancer
It is also good to include their age at diagnosis and if they died of their illness. Note that if your parents died at an older age, these aren’t likely to impact your policy.
Medication, alcohol and drug use is examined on the application. If you have had recommendation or treatment or addiction in the past, you must mention it. Your current alcohol consumption is also a factor. Smoking usually leads to higher premiums.
You need to include details on your lifestyle. If you have had a suspended driver’s license or a DUI in the past five years, then it needs to be noted on the form, with the date.
Do you like extreme sports? The following are all considered risky:
- Rock climbing
- Scuba diving
- Skydiving
- Racing
- Flying a plane
If you intend doing these in your retirement, you should add that in. Your premiums may be increased as a result but lying could result in the claim being denied.
Why you should get life insurance
If you’ve just become engaged or married, had a baby or moved into a new home, it’s time to consider long term financial planning. These are milestones that are a good time to take out life insurance, whatever type you choose.
The reasons that you should take out a policy are as follows:
- To ensure that your loved ones don’t have to change their style of living, or compromise on basic needs
- To save your loved ones the pain of moving home after you have died
- To provide funds for the unexpected costs – such as car breakdowns, a new stove etc.
- To maintain your partner’s work-life balance (if both of you were contributing to living costs, this strain can become enormous when one of you dies unexpectedly)
- For overall peace of mind – knowing your family will be protected after you’re gone is one less worry.
When you consider the impact that financial matters can have on mental health, it becomes more than a matter of security, it is also a matter of stability and balance.
Life insurance may be on your to-do list, but not a priority. However, with plenty of advisors and choices on the market, it is easy to set up. Once you do, you’ll rest easier with the knowledge that your loved ones will be secure after you die.
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