A life insurance policy is designed to financially protect your family in the event of your death. It’s a good idea to understand exactly how these policies work before taking one out, however, to ensure that the policy you choose covers everything you need it to. In this article, we’re going to outline the most important questions you should be asking.
What Do You Need Life Insurance For?
There are a number of reasons why you may be considering taking out a life insurance policy. It is important to understand which ones of these apply to you before purchase. The main reasons you may want to be covered include:
- To ensure your family are supported
- To allow your partner to pay off your mortgage
- To leave an inheritance to your loved ones
- To cover the cost of a funeral
How Much Cover Do You Need?
This is a personal question and will involve looking at your current debts and responsibilities. You can use a life insurance calculator to help you with this, but the main things you will need to consider are how much your family relies on your income, and whether they would be able to survive without it. Most people choose to at least cover the cost of their mortgage, but you may also want to add your annual income plus funeral expenses to this total.
How Long Should the Life Insurance Policy Last?
There are two different options here; you can choose to take out a life insurance policy for a set period of time, or one that lasts until you die. The former is often better if you just need to cover the cost of your mortgage. If you have a 25-year mortgage, taking out a 25-year life insurance policy is sensible. The downside to this is that if you live longer than the term, you will have effectively paid into a policy without return. Whole life insurance is a better option for those who want to provide an inheritance to their loved ones. If you live in Singapore, check out the life insurance Asia policies here for more information.
Should the Amount of Cover Decrease Over the Years?
If you are purely taking out a life insurance policy to cover the cost of your mortgage, it makes sense to take out a policy that will decrease in amount over the years. This will make the policy cheaper as the payout amount will decrease along with the loan.
Should Your Partner Take Out Cover Too?
Even if you are the main financial provider for your family, it’s worth asking your partner to take out a policy too, especially if you have children. While you may financially be able to cover the cost of the mortgage and bills in the event of their death, you will also need to factor in the cost of childcare and any other responsibilities your partner had. You can take out a joint life insurance policy to save on the costs, although keep in mind these policies usually only pay out upon the first death.
Are you planning on taking out a life insurance policy soon? Let us know in the comments if this information helped you.