Life insurance is something which can be really oversold. Many people end up getting it when they do not really need it. However, there are times when life insurance can be really handy. It is a good idea to make sure that you know whether you need to have it or not.
Many people take out life insurance when they take out a mortgage at the request of the lender. This type of loan usually requires it. The life insurance is linked to the mortgage so if the person responsible for repaying the mortgage was to die, the mortgage will be automatically repaid by the insurance company. If you do not have this insurance not only will you in in breech of your mortgage conditions but you could leave a lot of debt for someone else to pay if you do die. Leaving debts or expenses to pay is something that many people are concerned about which is why many take up a life insurance policy.
There are life insurance policies that will pay out for funeral cover. You can take these plans out with a funeral director or through other means. These can help to put your mind at rest as you know that there will not be problems for someone else having to come up with this money. However, there are other ways that you might be able to provide the money for this. Perhaps just putting what you would be paying out for the monthly premium into a savings account each month will soon add up to enough money. It is good to think about what you will need to pay for this. Then you can think about how many payments you will need to make and whether you think that you are willing to risk not having the insurance and make those payments instead. Of course, it will also depend on whether you think that you will have the self-discipline to make the payments and also not spend the money that you have saved. You could put it into an account in the name of your next of kin so that they can easily get access to the money when needed and you will not be tempted to spend it. However, you will need to make sure that they will not be tempted to spend it themselves.
Some people like to take out life insurance because they want to make sure that their family are well looked after when they die. This could be one that pays out an income so that they can cover regular costs or a lump sum. Although it can be really nice to think that they will be taken care of like this, it is worth thinking about whether you are overpaying. Consider the risk to start with. Is there a genuine risk that you will die and that they will need the money or are you paying out each month for something that you will be very unlikely to use? Also think about whether you could pay this money into an investment instead that could provide an income if necessary but that will be there for you to use if you need it once your family grow up and are able to support themselves.
It can be difficult to assess the risk though. You may get peace of mind knowing that your family will be looked after. However, it is worth thinking about what you might be able to do with that money if you were not paying out for insurance that you may never use. You could be using it to have fun with your family now, to save up for their future or even to pay off loans, which would have to be paid off by your next of kin if you died. It is well worth having a discussion with your loved ones and decide whether it is worth spending the money this way. Although it may not be much to pay out, if you add up how much it is over a year and over a decade then you will be able to think about whether that money might be better spent elsewhere. If you have loans, then you could calculate whether it will be cheaper to use the money to pay them off and not leave outstanding debts or better to pay it into insurance which will pay out and the money could be used to pay the debt. It could be a complex calculation but worth looking into.
It is also worth making sure that you will be able to afford the insurance payments. If it is optional (i.e. not required by your mortgage lender), then only pay in if you can afford it. If you have to borrow money to afford the premiums then it is very likely that you will be paying out more than you would if you just put amounts into a savings account when you could afford it or paid off any other debts that you have.Continue Reading...