Life insurance mitigates the risk to your family that the loss of your income from your untimely death will cause them undue financial strain. It’s often hard to imagine a scenario when you’re not going to be around to provide your family, but in situations where you are the primary breadwinner it’s something you need to consider.
Life insurance premiums will vary depending on your age, sex and whether or not you are a smoker. Depending on your age, the life insurance company may ask you to take a physical exam before granting you a life insurance premium. If you are healthy and in better shape than average, a physical exam should generally mean you will pay lower premiums for your policy.
There are two kinds of life insurance premiums, stepped premiums and level premiums. Stepped premiums will start off lower when you are younger and gradually increase every year until you reach your maximum insurable age. The benefit of this structure is that the costs are lower in your younger years, when financial pressures are generally higher. However, your premiums will increase every year and so in the long term you could end up paying a lot more.
The other kind of premium is the level premium life insurance policy. These are fixed premiums at the same rate every year, adjusted for inflation, and will not increase with age. Whilst you will not have your premiums constantly increasing every year they are significantly higher in the earlier years than the stepped premiums, and many people find the short term attractiveness of the stepped premiums too hard to resist. It’s important to know, that over the long term the stepped premiums are more likely to cost you more if you live a long and healthy life.
Life insurance premiums are generally paid out in two scenarios. The first scenario is the event of your death, in which case your life insurance premium will be paid out to your nominated beneficiary which they can use to satisfy the debts that you will no longer be able to service, and set your surviving family members up financially.
The second scenario is the event of you being diagnosed with a terminal illness. In this situation, the life insurance policy will be paid out to you so that you can pay for the care you need as well as attending to the financial affairs of the family that will be surviving you. The policy will state the verification process for a terminal illness but generally a certain number of doctors will have to certify that there is no chance of your surviving your illness.
The concept of life insurance can be difficult to deal with objectively, as it is generally something that will not benefit you and will only help your family on your death. However no life plan is complete if you haven’t dealt with the possibility that you won’t be around to provide for your family. Life insurance will ensure that the partner you leave behind won’t be saddled with an unserviceable amount of debt and can maintain the lifestyle that they have become accustomed to. If you don’t have a sustainable life insurance policy in place for the event of your death, your surviving family members could be further distressed by your passing if they have to move out of the family home and take on an extra job to satisfy the family expenses.
Life insurance is an unselfish product purchase that provides for your family if you can no longer do so. You owe it to your family to leave them financially secure if you are no longer around to help them.