September is Life Insurance Awareness Month
In the United States, September is Life Insurance Awareness Month.
The Covid-19 global pandemic raised awareness to us all of how fragile life is.
Yet, life insurance is one of those financial products that we put off thinking about.
Particularly because no one wants to talk about the eventuality of them passing away.
As well as that, we especially don’t like to talk about what would happen if we passed away suddenly.
However, without a doubt, life insurance is an important part of any financial plan and protection strategy.
Indeed, it is the foundation of any good financial plan.
For the US’s National Life Insurance Awareness Month, we wanted to share some helpful information about life insurance.
Including what it is, its different types, and how it can help protect your family in case something happens.
No one buys life insurance because they want to.
They buy it because they care about their family.
What is Life Insurance?
Firstly, what is life insurance?
Life insurance is an insurance policy that provides cash to your family or loved ones after your death.
This “death benefit” helps replace your future income and supports your loved ones also in non-monetary ways.
Your family can use this payment for funeral expenses, mortgage payments, college tuition, and other bills.
The Different Types of Life Insurance
There are three main types of life insurance, decreasing term assurance, term assurance and whole of life cover.
Let’s have a look.
Decreasing Term Assurance
Decreasing term assurance will cover the insured for a specified period.
The specified period and cover are chosen at outset.
Over the duration of the policy, the cover provided decreases.
Decreasing term assurance is more commonly known as ‘mortgage protection’.
It is mostly used in conjunction with someone’s mortgage, whereas should they suffer an early mortality, their mortgage is clear, freeing their family from mortgage debt.
The decreasing element typically matches the reduction in debt on the mortgage as you pay your monthly mortgage payments.
This is the cheapest form of life insurance.
Term Life Insurance
A term life insurance policy covers the insured for a specific period, usually set between 5 and 30 years.
Term policies pay a death benefit only if the insured person dies during the coverage term.
These policies don’t carry any cash value, but the premiums are generally lower than whole of life insurance premiums.
Furthermore, term life insurance policies may offer a greater level of flexibility because you can amend your policy as your needs change.
Whole of Life Cover
Whole of life cover provides cover for the holder for their entire life.
Some older versions of these policies also carry a savings or investment component.
Furthermore, the older versions can carry a reviewable premium.
This allows the provider of the cover to review the rate of cost to them to cover you.
It’s no surprise that this rate increases as you get older as the risk to the provider paying out increases.
Irish Life appears to have a significant back book of these policies that generate enquiries weekly.
The modern whole of life version we set up today carries no saving or investment component or reviewable premium.
Whole of life cover is also used to help clients mitigate any inheritance tax exposure on their death.
Serious Specified Illness Cover
In addition to life cover, a policyholder can add on serious specified illness cover.
If the insured is diagnosed with a serious specified illness defined within the policy, they receive a lump sum payout.
Tax-free.
Do You Need Life Insurance?
For most people, the answer to this question is “yes.”
If you earn an income, you have a future income to protect.
Life insurance can help protect the people you care about if something happens to you.
This could include a spouse, children, disabled family members or any other dependents.
Depending on your household expenses, you may not have to purchase an enormous life insurance policy.
Even modest protection could help your family pay the bills and make arrangements.
As we highlighted earlier, no one buys life insurance because they want to.
They buy it because they care about their family.
Is life insurance expensive?
No, let’s look at some examples.
Example No 1
A 40 year old male, non-smoker can get €250,000 (quarter of €1m) fixed life cover for 20 years, to age 60 for less than €30 per month.
Included in this, at 60 they can take out a new policy with no medical underwriting, irrespective of their state of health.
As a consequence, if he suffers mortality within the 2o year term, his dependents get €250,000.
€250,000 to help them with the financial issues mortality brings.
Example No 2
Let us look at a 45 year old, planning to retire at age 65.
The same €250,000 cover, 20 years to retirement age 65.
Less than €45 per month.
Clearly, low cost, excellent cover, peace of mind.
Summary
In conclusion, pretty much everyone requires some level of life insurance.
It’s not expensive and it protects your family.
Despite how we go about our daily lives, we are all vulnerable.
Life insurance provides peace of mind and puts your family in a position to absorb the financial shock early mortality can cause.
Allowing them to focus on what’s important at that time, dealing with grief, not financial worries.
It’s important to get the balance between the level of cover you need versus what’s too much and too little.
So what if you get to the end of the term and are still alive, pretty good outcome I’d argue!
How We Help
We can review your life insurance requirements with you.
Inform you what you should have versus what you have actually got.
Are you over insured? Under insured? Paying too much?
Consequently, you’ll have a solid foundation of a financial plan.
Allowing you to direct your financial resources to other elements of forward planning.
Get in touch
Do you have existing policies in place you would like to review?
Or would you like to discuss your need for life insurance get a handle on your shortfall of cover?
Email us at info@fortitudefp.ie or request a callback.
Alternatively, you can get us on 086 0080 756 or access our diary here and book a call at your convenience.
Why not visit our insights.
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Our blog posts are intended for information purposes only and should not be interpreted as financial advice.
You should always engage the services of a fully qualified financial planner before entering any financial contract.
To discuss engaging the services of Fortitude Financial Planning please email us at info@fortitudefp.ie.
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