Losing a loved one can be a harrowing experience. Loss of income and financial hardship are generally the last things on your mind. We don’t like to think about death and dying – and it’s one reason why many New Zealanders postpone taking out a life insurance policy.
When you die, the knock-on effects are greater than most people realise. If you’re the sole breadwinner, you may leave behind a partner and kids with no way to financially support themselves while they process your passing. You might have unpaid debts or a mortgage that your family must take care of.
Taking out a life insurance policy is often perceived as a costly and complex expense. It’s one of those jobs that sits on our to-do list – unfortunately until it’s too late.
Here we look at some of the common misconceptions around life insurance, and how it can be an easy and affordable way to ensure that your family avoids any financial suffering if the worst happens.
Life insurance…
It only covers funeral and burial costs
Some policies will take care of those one-off end-of-life expenses, but life insurance covers a lot more. Depending on the policy you choose, it might cover your mortgage, your income, your children – or all the above.
Life insurance pays your dependants a fixed lump sum if you die, are diagnosed with a terminal illness or have less than 12 months to live during the term of the contract. The ‘term’ refers to the number of years the policy lasts.
There are two types of life insurance. There’s stepped cover, with premiums that increase over time as you get older. The second option is level cover, with premiums that stay the same for the term of the contract but are more expensive initially.
It’s expensive
Most people overestimate the cost of life insurance. When you choose a life insurance policy, several factors will influence your premium – not just the type and level of cover, but also whether you pay on a monthly or annual basis.
The cost also depends on the level of cover you want or need, your age, gender, overall health and lifestyle, number of dependants and financial commitments.
It’s for older, wealthy people
Death may be certain, but when we die is not. Assuming you won’t need life insurance until you’re older is one of its greatest misconceptions. While it makes sense to not take out cover until you need it, part of the problem is not knowing just when that time will come.
A life insurance policy covers the what-if scenarios: if you die during the policy term – unexpectedly or not – then you have peace of mind knowing that your family is taken care of even when you’re gone.
I don’t need life insurance – I’m fit and healthy
You might be in good shape, but that doesn’t mean that something unexpected can’t or won’t happen. If you have a young family, that’s even more reason to invest in life insurance. Living is expensive and if you die unexpectedly, your wife or husband will need to replace your income to keep the household running.
The cheapest policy is not always the best – and vice versa
Some people mistakenly believe that the best life insurance is the policy with the cheapest premium. Premiums can increase year on year and your life insurance may become unaffordable over time. You may want a policy where your cover and premium remain the same long-term, saving you money and giving you the flexibility to build up other assets for retirement.
I don’t know what I need or which provider to approach
There’s an intimidatingly large number of providers out there. The good news is, life insurance can be easy (and affordable) if you know where to go for help. Insurance brokers know the market better than anyone and can help you take the necessary steps to arrange cover. Because there is no such thing as a one-size-fits-all policy, they know what questions to ask to ensure you get the best policy for you and your family – that also fits within your budget.
Don’t bury your head in the sand
Keeping on top of life admin can often feel like a full-time job. While none of us likes to dwell on the what-ifs or the thought of a loved one dying, being prepared can give you peace of mind now – and limit the financial implications if the worst should happen.
It’s best not to assume anything about life insurance because most of the time it’s easier and more affordable than you think. Discuss your life insurance with your family, and then reach out to an insurance advisor to get the right type of cover and premium.
Ready to protect your family with life insurance? Talk to the Global Finance team now.