Family Life Protection

The Real Cost Of Life Insurance

In life, you are guaranteed two things, death and taxes. Tax, you can always find means and ways to work around them, reduce them and while some have tried to avoid paying tax, I do not recommend it.

With death being a certainty, life insurance as a risk management tool becomes highly recommended.

What is Life Insurance?

By definition, life insurance is a risk management tool designed to provide for any financial burden that would arise in the event of the death of a financial provider. In simpler terms, it is insurance that pays out a sum of money either on the death of the insured person or after a set period.

Why insure your life?

For a lot of people, getting life insurance is not one of those things we consider a priority. For most people, their first experience with life insurance is when a friend or family member has been hired by an insurance company and they are the first people he sells his product to. Most people don’t go out to buy life insurance it is sold to them.

So the question would be, why should one get life insurance? As you grow older, get married, start a family, or start a business, you’ll realise that life insurance is indispensable and fundamental to a sound financial plan.

Life insurance gives you the peace of mind knowing that money would be available to protect your family and estate in a number of ways, including:

  1. To Pay Final Expenses – Pay for the cost of a funeral and burial expenses which can easily run into the thousands.
  2. To Cover Children’s Expenses – As a responsible parent, you want to be sure your kids are well taken care of and can afford a quality education even after your death.
  3. To Replace the Spouse’s Income – If you partner passed away while the children are still, you want to know that her income would replace to maintain the standard of life you and your family have come to enjoy.
  4. To Pay Off Debts – In addition to providing income to cover everyday living expenses, your family would need life insurance to cover debts like the mortgage so they wouldn’t have to sell the house to stay solvent.
  5. To Buy a Business Partner’s Shares – if you are involved in a business you’ll need to provide life insurance on yourself and partners so that if anyone of you dies, the business would have cash to buy out yours or partners’ heirs without having to sell the company itself.
  6. To Pay Off Estate Taxes – Even after death, you’ll still have to pay taxes of some sort. Estate taxes can be steep, so having insurance in place to pay them is essential to avoid jeopardising assets or funds built for retirement.

So what is the real cost of insurance?

When taking up life insurance take the following into account. The cheapest is not always the best and the most expensive is also not necessarily the best either.

Finding the balance of cost and value for money is the key to ensuring that you are well provided for and can afford to have life cover in the present moment as well as into the future.

How much Life Insurance do your need?

There are many schools of thought on how to calculate the amount of Life Insurance needed or taken out. The basic rule is that the amount should be high enough to replace the after-tax income you would have earned had you lived a full life, presuming you can afford the premiums for that amount.

In other words, the insurance replaces the income you didn’t have the chance to earn by living and working until retirement due to a premature death. If affordability is an issue, rather take what you can afford than not have any life insurance cover at all.

Remember, the younger you are and the healthier you are, generally you would have lower premiums for more cover.

It is advisable that as you start working, invest in life insurance even if you have little to no responsibility because unless you plan to stay under a rock for the rest of your life, Life Insurance would soon become a need more than just a requirement.

The true cost of life insurance cannot be the subject of one article, but if you have ever lost someone who never provided for the eventual time of death, you would know the cost is much higher to pay than if that person had provided some kind of financial support through LIFE INSURANCE.