Do you need life insurance?

During one of the hardest times for your family, life insurance can help make the situation a little bit easier. Life insurance is one of the most popular types of insurance policies in the world. No matter where one lives, whether it is New Zealand or anywhere else, life insurance is a part of estate planning.

There are many uses of life insurance besides just estate planning. It is extremely useful for parents of young children, a disabled child or adult, and for supporting a spouse. Besides just to support dependents, it can be helpful for providing immediate cash at the time of death.

The proceeds from the insurance policy are a great source of cash for the payment of the deceased’s debts, income taxes, and even funeral expenses.

Now, people that do not have any minor children or dependents might not require life insurance. The questions below will help you evaluate what your life insurance needs are.

Anyone buying insurance should know just what they are purchasing in order to choose the best type of insurance policy for their needs. 

What is life insurance?

Life insurance is a type of insurance that requires a premium to be paid regularly in exchange for cover for the consumer in the event that he or she dies.

While there is no way to replace or make up for someone’s life, the insurance company will provide the consumer’s spouse or next of kin with a huge lump sum of money.

This is extremely useful for families that depend on that person for their financial situation and would not survive without it. 

Long-Term Needs

In order to determine whether you should buy insurance to help family members over the long term, the following questions should be considered:

How many people are dependent on your income? 

This is important as if you are currently supporting a big family whether it be you have lots of children or whether you’re supporting a family member like your grandparents or your siblings, your need for life insurance will grow.

The more people that are dependent on your income, means the more people that will struggle financially if you were to pass away. This should be a big factor to consider before getting a life insurance quote. 

How much money do the dependents need to meet their living expenses?

A great way to determine the amount is by looking at the earned income that you offer your dependents regularly.

From that amount, the worth of the property that would be inherited by them should be subtracted and also any other amounts such as private insurance plans or public sources which provide coverage.

There are also dependents and Social Security survivor’s benefits which would be received by them. Management and union pensions should also be considered.

The amount from other sources of income such as from affluent grandparents should also be subtracted.

How long would the dependents take to become self-sufficient?

Children that are almost out of college normally would not need much additional income. However, if they are younger, then there is also the possibility of dependent spouses getting back to work or the kids getting partial or fully paid scholarships.

This exercise would help you find out whether your dependents would need additional income such as in the form of life insurance or not. But, if the dependents are young, it would be better and a more affordable choice to choose a life insurance policy.

Short-Term Needs

You also need to assess whether life insurance is required for short-term needs. The following questions should help:

Are there any assets that would be available to handle the immediate financial needs of the dependents? 

There might be the possibility of pay-on-death or joint bank accounts to meet their immediate expenses. Also, make sure to register them for beneficiary. 

After death, how long would it take for the property to be turned over to the inheritors?

In case the property avoids probate, then there’s little need for insurance to meet the short-term expenses, unless there are no bank accounts, cash assets or securities.

In case the bulk of the property takes time to be transferred due to probate, your dependents would need cash from insurance.   

Does the estate owe substantial taxes or debts after your death? 

If the assets are cash or can be easily converted to cash then the term liquid would be used. But, if the estate doesn’t have many liquid assets (such as jewelry, share in small business, collectibles, real estate), then there would be a huge financial loss in case the assets get sold too quickly.

The good thing is that federal estate taxes don’t get due until a few months after death.

What affects the cost of life insurance?

Amount of coverage

One of the biggest factors of the cost of life insurance, is the length for which you wish to be covered for. Term periods last for 10, 15, 25 or 30 years and it ultimately depends on the insurer.

Whole life covers the consumer until their death. There are also add ons you can get with each policy that may increase the cost of the premium, if you wish to have them. 

How old you are

The way insurers determine the price of insurance is to evaluate the risk based on a number of factors. Thus, it comes as no surprise that your age can be a big factor for determining the premium. Generally, the older you are, the higher the premium. 

Your job

If your job requires you to work in dangerous conditions where you expose yourself to a risk everyday or even if you are working in a fast-pace stressful job, then it is likely that insurers will take this into account and increase the premium of your life insurance policy. 

Your health conditions

If you have a pre-existing health condition such as cancer, high blood pressure, diabetes and more, then your insurer may increase the premium because of this.

This is because compared to someone without these conditions, someone with cancer or high blood pressure is probably at more of a risk than that person. 

Conclusion

Having life insurance if you are the sole income earner or if your family members are dependent on you is always a good choice. There are different types of insurance policies that are offered by insurers, which is why it is important to make sure that you choose the best one that meets your needs.

Make sure to do some research on the different life insurance policies as there are quite a few perks and loopholes that can make getting life insurance a lot easier. 

When making the decision of getting a life insurance policy, it is always a great idea to discuss the prospects with your spouse or adult children to know which policy would suit their needs as well. Choose a reputed insurance company.