Donegal Daily’s financial columnist Sean McNulty this week explains life insurance and why we all need to consider getting it.
When it comes to managing your personal finances, people really like putting things on the long finger. It is just one extra thing to not worry about right now. One of the most important areas of our personal finances is protection; and especially protecting ourselves and our family in the event of our (unlikely) death.
I agree, it is not nice to talk about, but it is inevitably something that we will tackle at some stage. So today I want to look at why you probably do need life insurance.
Dependents
The first reason and perhaps the most obvious is if you are a parent and have children. Children, otherwise referred to as dependents, depend on you and your income to raise them and for them to survive. So, what happens if you die tomorrow? The income that you’re bringing into your household stops, so technically your family suffers a loss of income. When we think about life insurance we should think of a monthly or annual amount of income that our family will need if you are not around anymore. This money is so they can maintain their standard of living. Cover that amount until your kids are 25, an age they can become independent (although I’m told many don’t )
Your spouse would to be able to continue planning for retirement and education funds or even things as trivial as holidays in the future. Essentially, we don’t want financial hardship placed on top of grief. We have a duty as parents to protect and provide, and life insurance goes a long way to maintaining that, even if the worst should happen.
Personal loans/debts
Other reasons for needing life insurance are to cover any debts that you may have. For example, you could have personal loans, car loans or credit cards with balances. These don’t disappear if you die; they are passed onto your estate. You don’t want to leave this financial burden behind to your family members should the worst happen. Having some life insurance even if you’re young and single is a good idea.
Business loans
You may also consider life insurance if you took a loan out to start or grow a business. Even if it’s a limited company you may have a personal guarantee against the loan.
Funeral costs
Another reason that you might want life insurance is to cover any funeral expenses should you die. Again, it is a financial impact on your family that you may not want to pass on. People generally want €10,000 to €25,000 set aside for this, just in case. That money can provide some relief to family in the time of pain and anguish.
As mentioned previously, it’s quite easy to put things like this on the long finger but the truth is we just don’t know what’s around the corner so we should prepare just in case.
Costs
Life insurance premiums can start as cheap as €10 per month, and go into the hundreds depending on the level of cover.
Options on types of cover
You have multiple different options when it comes to choosing the right cover for you. For example;
– you can have the pay-out from a policy remain the same amount the whole term of the policy (term level), or you could have decreasing life cover so that the amount that would be paid out decreases over time which makes your monthly premium cheaper (decreasing life cover or even mortgage protection can be used without a mortgage).
– You can also have a conversion option built into the policy for an extra one or two euro per month. This option will allow you to extend the length of the policy at any time during the policy without having to answer any new medical questions. This can be hugely beneficial because if your health ever deteriorated in the future. You may not be able to get life insurance again. With the conversion option you can extend the term of your existing cover and not have to answer any medical questions about the new condition.
– If the cover is for yourself and your partner, the policy doesn’t have to stop on the first death. You can continue the cover under what’s called at ‘Dual life’ basis and that means the policy continues even after the first death and would pay-out on the second death also.
– You can add a Specified Illness Cover option to a life insurance policy also. This option would pay you a tax-free lump sum if you were diagnosed with any one of the 53 listed illnesses on the policy. (There are also partial payments for about 40 or so other illnesses). This type of financial pay-out can be hugely beneficial at a time off a serious diagnosis.
Pre-existing conditions
One last points to touch on regarding life insurance is to not worry if you have pre-existing health conditions. All insurance companies will consider all applications so it’s best to get advice from a financial broker if you’re concerned about the impact of a pre-existing condition. I see it every single day personally; at least half of all applications I process have a pre-existing condition.
When the application is then underwritten by the insurer, they could still accept the application at standard rates. They might increase the monthly premium (loading) because there’s extra risk. Or they may exclude that pre-existing illness/condition from any future pay-out. It is definitely not always a ‘decline cover’.
Sean McNulty is the founder and Managing Director of Rethink Money Ltd, a financial advisory company based in Letterkenny. Sean’s company is a digital-first advisor with a bespoke software to help clients best manage their financial needs.
For a free consultation feel free to reach out to us at info@rethinkmoney.ie
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