Life as we know it has a beginning, middle and end. In between, of course, we go through various stages. For example, we grow into young adults, generally get married, have children and then retire. At each stage we invariably face challenges, and hope we are successful as we face any issues that cross our paths.
So what does this have to do with insurance?
Life changes so rapidly that people are often unaware of how it can affect their insurance. That’s why it is so important to regularly review your insurance and make sure it accurately reflects your circumstances, especially when changes occur in your family. If you don’t do this, you may find that the cover you have is no longer appropriate and adequate for your needs and indeed, you may not have enough cover, or on the flipside you may be paying for too much cover.
Let me explain, using a simple example such as life insurance.
The principal purpose of life insurance is to provide for dependents in the event of your death. Key things that it can be used for include: repaying debts such as mortgages, credit cards and hire purchase, paying final expenses such as funeral costs, legal expenses and taxes and possibly providing a fund from which your dependents can draw an income to maintain their current lifestyle.
As a young adult, generally you would have no need for such cover unless you had debt such as a mortgage. This is so in the event of premature death, your estate would have a debt-free asset. As you move through the next two life stages of marriage and having children, this type of insurance cover is far more appropriate. And, as changes are made in the family, you need to continually review this cover (and of course other cover you may have) by considering questions such as, have you…
- Increased or decreased your mortgage(s)?
- Changed homes?
- Entered into a new relationship?
- Separated from your partner or spouse?
- Had more children?
- Had children turn 21?
- Established a family trust?
- Changed trustees of your trust?
- Changed occupations?
- Had a pay increase or decrease?
- Accumulated a sum of money that enables you to now push your income protection wait period out to a longer date, thereby lowering your premium?
- Stopped smoking?
- Had a change in health that may trigger a removal of an exclusion or loading on your insurance?
- Retired or stopped work?
- Transferred the ownership of your home or other insured assets to a family trust?
- Changed from salaried employment to being self-employed?
- Changed your goals?
- Started or stopped other insurance policies – including any group schemes and medical insurance?
Based on the above, and working on the same example, let’s say you have sold your home and bought a bigger house because your family have outgrown the one you had. This has meant a bigger mortgage. In terms of life insurance cover, you would need to have this reviewed and potentially increased in order to cover your higher debt. This is so that if in the event of premature death, whilst the emotional aspect of your death will be devastating to your family, at least from a financial perspective, your family can avoid financial devastation. They will have more options available to them compared to if they were left with a large debt and had to sell the house and move away.
As we reach the next life stage of retirement, life insurance cover much like being a young adult, is not normally required. Typically at this stage in our lives we have paid off the mortgage and have little or no debt. Our children have all grown up and have lives and families of their own and so the cycle continues. Some retirees may choose to maintain some life insurance to perhaps cover their funeral or leave their children or grandchildren a bequest upon their death. However, the difference at this stage is the financial implications of death are usually not catastrophic because of the fact that there is usually no debt to cover and no young children to worry about.
If you consider how many changes have occurred in your own family over the past year or two, you will understand that life does not remain static. Changes within the family occur all the time. To protect you and your family financially it’s vital you either put in place some cover or get your cover reviewed. There is no cost to you to have this done. Talk to your local adviser who will help you.