Do you need life insurance? This is a question that many people ponder about. Well, we’ll say that it depends, for different people have different needs. Life insurance is a form of financial protection that safeguards you and your family against death, permanent disability and critical illness. It is also a backup plan that can help lessen your financial burden.
If you are single and do not have any dependents, you might look to think twice about purchasing one. However, if you have dependants (i.e. children, spouse or elderly parents) and plenty of financial obligations, it is best that you get a life insurance as it ensures that your family is taken care of, should anything happen to you.
But, just how much of life insurance is considered enough? While your current employer’s insurance may cover your income for a period of time, but what about ten years later?
There are two types of life insurance: whole life insurance and term policy. Both of them serve the same purpose (i.e. life coverage). Its difference, however, lies in the coverage period and how much money you will get back (if nothing happens to you).
Term policy provides you the protection for a set period of time (e.g. 20 years), and is often deemed as the more affordable and suitable option for lower-income holders who needs life coverage. However, term policies do not have any surrender value. This means that you (the policyholder) will not receive any amount if you surrender your policy during the coverage period.
On the other hand, whole life insurance covers you throughout your life and offers guaranteed payouts (even if you surrender your policy). But, premiums are much on the higher side and the surrender value is definitely lower than your death benefit payout.
If all you need is a life coverage, consider going for the term policy and saving or investing the rest of your money. Otherwise, if you are saving for your children’s future university funds, whole life insurance is the way to go, as premiums for children are extremely affordable.
Before purchasing a life insurance for yourself, decide on how much coverage you need to meet your family’s financial obligations, and take important factors such as your debt, goals and annual income into consideration.
Here are some questions that you should ask yourself. First, is your spouse a stay-home parent? Should anything happen to you, will she have enough (in terms of finance) to cope and support the whole family? Will your savings be enough to cover all of the future expenses?
Next, how much of assets and liability do you have. If you are currently serving a 15-year home loan with the bank, how much more do you have to pay?
One should generally get a life policy worth at least 12 times his annual income, but the amount of life coverage is relative because it depends on your family’s needs and expenses. For example, the more debt or expenses you have, the more coverage you should get.
Keep in mind of how much money you think is enough to provide for your family. If you are 40 years old and want to provide for them only until your children are in the workforce, is the coverage enough to last for the next 15 years?
Often, it is seen to many that stay-home parents caring for their young children do not need life insurance, as they do not draw a monthly income. Life insurance might not be necessary, but it can help plenty, should anything happen to either parent. Let’s look at the case study below:
Tim is the sole breadwinner of his family. He has three young children with his wife, Anita, who gave up her full-time job and be a full-time mom. Unfortunately, Anita met with an accident and passes away soon after. Left without any time to grieve, he had to juggle between his full-time job and three young children. This has soon taken a huge toll on him, and he decided to employ a full-time caregiver to take care of his children, which takes up more than ⅓ of his monthly salary.
Not sure if it is the right time for you to get a life insurance? It is cheaper to get life insurance when you’re young, so consider taking out a sufficient policy if you are looking to get married or have your first child. With the proper amount of insurance taken, your family can continue their lifestyle, even if your income is no longer available. It is important to do a review yearly or as and when there is a change in your circumstance or event.
Get started with a non-obligatory consultation with our experienced Financial Consultants to discuss the next best step for your life insurance today: https://gtgroup.sg/contact-us/