My father died when I was nine years old. He left my mother and four children between the ages of seventeen and nine with no money. Sure, I missed him, but at nine years old, I had no real idea about death or loss. I know it sounds selfish, but what I really missed was our old way of life. We had to move because we were living in a company house and couldn't stay there any longer. We had to give up our car because it was also provided by the company. All we could afford was a ramshackle council house. It was small and cramped and there weren't many fences so we felt like we had neighbors right above us. It was all just salt for the wound of our grief, all those unpleasant things that had now become our life. I don't know why my father didn't take out life insurance, all I know is that he didn't and we endured the consequences of this decision for a long time.
It made me wonder why so many people roll their eyes when the words “life insurance” are said out loud. Of course, I can understand that you don't want to consider a scenario that would require you or your family to actually need it, but that's no excuse to completely ignore it and not plan ahead. Imagine, just for a moment, the life of your family if the worst were to happen and you had no life insurance?
The purpose of life insurance is to guarantee an income for your spouse and your children if you were no longer able to contribute to their well-being as you currently do. Think about it, if something were to happen to you, could your family afford to live in your current home? Would there be enough money to sustain their current lifestyle? Would the cost of funerals become a burden? Would your spouse be able to support your family easily? Or would the stress, grief, and financial burden of your loss cause them unbearable hardship?
Maybe you think that because you saved and invested wisely and established a solid foundation that, despite your lack, your family would do well financially. The reality is that it is unlikely. This is especially true for families with young children. This is often a time when families are still struggling to get established and often debts are high, savings are low, childcare is expensive and incomes may not be at their peak or perhaps a partner is absent from the labor force to take care of the children. Of course, it is when funds are often depleted that life insurance is most needed, but often this very fact deters families from committing to regular insurance premiums.
But the good news is that it makes you a good candidate for term life insurance because it's the cheapest form of life insurance there is. Term life insurance premiums are calculated based on your age and medical condition and are usually purchased in terms of a specific number of years - 1, 5, 10, 20 or whatever period you prefer. The result is that term life insurance has the highest coverage for the lowest premiums.
Although term insurance is not ideal for seniors, as prices rise significantly with age, it is a great solution for young couples or families with high debts including mortgages, expenses life and dependents. Insurance can cover you while your children grow up and the mortgage is paid off. When the policy expires, you will more than likely have invested, paid off your major debts and no longer have dependents.
So who should be covered by a life insurance policy? Since insurance is really about income protection – providing funds when you can't – you would normally cover anyone who contributes to the family's finances. So first, make sure the primary breadwinner is covered. If that income is gone, you want to make sure that common family needs are covered.
But don't stop there. If your spouse takes care of the children full time and something happens to them, how would you fund child care? Insurance may cover this additional cost. So if secondary income is used to cover expenses, either through income or through an unpaid contribution, that person must also have an insurance policy.
Do you need life insurance for your children? Generally, this is only advisable if you cannot afford the funeral expenses (usually around $5,000). Otherwise, there is no reason for the children to be insured since they do not contribute to the family income.
Having life insurance not only gives you peace of mind knowing that your family will be taken care of after you or your spouse is gone, but it just might be one of the best financial decisions your family can ever make.
