In your youth, before you have settled down and assumed responsibility for any dependents, there is very little value to acquiring life insurance. Not only would you be forking out money each month on premiums that you do not require, but you would be spending cash that you could be setting aside for when you actually do need it.
The reality is that the moment you get married, life insurance suddenly becomes relevant to you, and this trend extends further when your first child arrives, because you finally procure financial dependents who you might wish to obtain cover for. Contemplating the acquisition of life insurance when you start a family is a not uncommon, and indeed we have engaged with a multitude of different enquiries and requests from people in this group.
If you currently have a long-term partner who you are having or have had children with, and are considering getting life insurance, then you should consider these three questions first before making any final commitment to purchasing a premium.
Do we need life insurance at present?
The first thing you will need to ask yourself when considering life insurance is the question; do I really need it? Moreover, you should ascertain whether you have a sufficient amount of disposable income each month to contribute towards regular premium repayments. This is because your life insurance deal could collapse or you could be subjected to heavy fines, if you fail to make your premium payments on time each month. Evidently, either of these potential outcomes would constitute a waste of your time and money, so it is important you evaluate your finances closely before committing to any deal.
Obviously, the decision about whether you need life insurance or not is entirely personal, and there might be unconventional circumstances in which you opt to pursue its acquisition. However, generally speaking it is worth starting to consider it when you have a family or a partner who is finally reliant on you. You should evaluate your household’s current monthly expenses, and weigh this against the amount you have saved away to see how well your surviving dependents would cope in the event that you passed away. If you find that they would struggle to pay your mortgage, your utility bills, or any living costs, then it might be worth considering life insurance.
Similarly, if you have children, and harbour ambitions for them such as sending them to university or bestowing musical prowess upon them through the provision of lessons, then you will need to consider the long-term costs of these. Ask yourself, will my partner be able to make these future payments without my income, or is this simply not tenable? If the answer is no, then you may want to consider covering yourself with life insurance, and taking into account these future aims in order to determine the amount to pay into your premiums.
How much should we cover ourselves for?
As the reason you are likely pursuing life insurance is to ensure your loved ones are amply catered for financially, in the event that you untimely pass away, the amount you decide to cover yourself for is of paramount importance to achieving this aim.
In order to identify how much to cover your dependents for, you should first add up the total value of your debts at present, both secured and unsecured. You should then determine how long you believe they would need financial support for after you are dead, and multiply this by the value of your total monthly expenses. You should then add these two figures together, in order to determine a final value to cover yourself for.
However, if you desire to send your children to university, or your partner has a medical condition you believe they’ll need money for in the future, then you might want to incorporate this into the amount you cover yourself for as well.
Should we take out a joint life assurance policy?
A number of younger couples nowadays are opting to take out a joint life insurance, which pays out in the event that either of them dies during the term of their policy. The policies are often cheaper than purchasing two separately, and can take the form of most conventional types of life insurance terms as well. Whilst there is no problem purchasing a joint policy for your household, you should consider that premiums of this kind will only pay out once, when the first partner dies. As such, you may decide that having two forms of cover is more appropriate to your financial situation; though you will have to be prepared to pay more if you go down this path.
However, if you live in a household where there is a sole breadwinner, and you have at least one child, then it is recommended that you still consider either purchasing a joint life insurance policy with your partner, or purchasing a policy for both of you. This is because the impact on your household’s finances would be huge irrespective of whether the breadwinner or stay-at-home parent died. Obviously, if the breadwinner passed away, then the entire household would be financially deprived. But if the stay-at-home parent died, then the breadwinner would have to re-evaluate their career, and spend far more on childcare costs and maintaining the house than they did before. As such, you should consider these collateral costs when considering the amount of cover to take out, and remember that economising in the short-term by only taking out one policy could result in a larger financial strain on your household in the future.