When people start a family, getting life insurance can be a great idea. But what if you are reaching retirement and you have savings? Is a life insurance policy a waste of money? Here is a quick look at the benefits of having life insurance and the situations when you might not need a policy.
What are the benefits of life insurance?
When it comes to figuring out if you need life insurance, it’s a good idea to start with the benefits life insurance can provide you.
The core benefits of life insurance are for the beneficiaries of your policy. Your beneficiaries are the people or the person you choose to receive the proceeds of your estate when you die. In most cases, this would be your children or your partner. Your loved ones can use the money to:
- Cover your outstanding debts. Life insurance is often used to cover any outstanding mortgage value or other debts you might have. Debts are paid from the estate when you die. If you have a lot of debt, your life insurance can help your loved ones clear your debts while leaving something behind.
- Cover the loss of your income to help your loved ones cover any bills your income would usually cover. If you're the primary breadwinner in your household, life insurance can guarantee your loved ones don't immediately lose the income you would typically provide.
- Provide a gift lump sum. Your life insurance can provide an immediate lump sum pay-out to cover things like funeral costs. It might also leave an inheritance for your children to use.
For you, the above gives a lot of peace of mind. You know that if the worst happens and you die, your family won’t have to struggle financially. They will be financially secure for the immediate future, and they can focus on coping with the emotional side of losing a loved one.
What are the disadvantages of life insurance?
The downsides of buying life insurance primarily relate to purchasing a policy when you don’t need it. If you are not going to enjoy the above benefits due to your circumstances, then getting life insurance might be costly and unnecessary. Paying for the premiums with no likely tangible benefit isn’t a good idea, especially given the cost of some policies!
It's also worth noting the cost of life insurance tends to go up the older you are. Getting life insurance later in life can be disadvantageous, and you might be better off looking at alternatives. For example, you might give your family a better return by investing the money instead. However, there are also life insurance options designed specifically for people close to retirement age. If you're looking at getting life insurance, you should keep these plans in mind. It all depends on your circumstances and the financial goals you have for the insurance policy.
Life insurance is not mandatory. Therefore, the main thing is to ensure you consider your circumstances before you shop for a policy. You should make sure you understand what the benefits are for you to ensure you avoid the negatives.
You should also keep in mind what situations and events your life insurance covers. Most life insurance has exclusions, and you need to be aware of those before taking out a policy. For example, your insurance might not cover death from alcohol abuse or death from a severe health condition you had when you took out the policy. It is possible to purchase other insurance products to cover things like:
- Long-term illness.
- Critical illness.
- Total or permanent disability.
When is life insurance not needed?
Life insurance can provide peace of mind when you are younger and have other people depending on you financially. You might not need life insurance if:
- You are single, living alone and have no one financially reliant on you.
- Your contribution to your household income is minimal, and you don't contribute much to living expenses.
- You are already financially stable, which could mean that you have cleared your mortgage, and you have little or no outstanding debts.
Examining the financial situation you’d leave behind is a good way of deciding on the usefulness of life insurance. If you already have savings to cover immediate costs, such as organising a funeral, you might not need life insurance. However, having life insurance might help if you have several financial obligations. Your partner could be reliant on your income, or you might have a lot of debt. Your life insurance could secure your partner's financial future in these situations.
Consider your financial situation at present and how other people will be affected financially by your death. The more financial obligations you have and the fewer savings you have to cover those, the more useful life insurance could be.
Learn more about the different life insurance options
Whether or not you need life insurance depends on your circumstances. You might benefit from having life insurance, but it's mostly a matter of what you want to get out of having the insurance. Knowing what different life insurance policies are and what they can do for you is essential.
It's worth keeping in mind the alternatives. For example, if you are looking to take care of your funeral costs, you could consider things like pre-paid funeral plans. If you are hoping to leave behind an inheritance, then you might compare having life insurance and setting up a trust fund. Both options can be useful in terms of planning for Inheritance Tax. You should think about your goals and options before deciding on whether you need life insurance or whether another option, such as savings, are better for you.