Almost everyone over a certain age has a life insurance policy of one type of another, be it one they signed up for themselves, a company paid for one, or one imposed on them by a financial institution (e.g. a mortgage company).
The prospect of our dying through old age or accident starts to become important to us after we leave the family home and start our independent lives (some parents will also have their existing children listed in a life insurance policy while they are minors).
But why is life insurance important?
One argument is, “why should I pay premiums for the rest of my life, when all it is going to do is pay someone else a large sum of money when I am dead? It’s not a lot of use to me is it?”
That is certainly a valid argument, but would you want to leave the people behind you with financial commitments? Do you want your family to have to take out loans and become financially indebted just so that they can afford to give you a decent funeral?
Of course you don’t, you want to make the period after your death as easy as possible for your family and friends (at least it is hoped you do), a life insurance policy will normally cover funeral costs.
Another reason is existing financial commitments
Assume that you are married, have a house, a car (which was financed and is still being paid for), and two children who you and your partner are putting through school. Due to circumstances that you have no control over you are in an accident and die.
Who is going to pay for the house and car (your spouse is legally liable for those commitments now that you’re not there), who is going to pay for your children to continue through school? Unless your spouse is independently wealthy, they are not going to be able to afford all of those things on a single salary.
With an appropriate life insurance policy those financial problems will disappear, as the policy you and your spouse took out will have been written in such a way as to guarantee that the house is paid for, loans are met, and there is enough left for your family to continue in the way of life they are used to (maybe with some cutbacks – life insurance policies are not designed to make a surviving partner a millionaire).
Those reasons are to cover people you left behind, not for you precisely, but for your peace of mind.
Can a life insurance policy benefit me while I am alive?
Certain life insurance policies can also cover things that happen while you are alive. Take the above example again, but in this scenario you do not die in the accident, but are injured in such a fashion that you are unable to work. Depending on what type of insurance policy you have, you may qualify for disability payments from it, that will allow you to continue paying for the house, and children’s schooling.
If you are getting older in life, have retired from work and are reaching the age where you either require medical care at home, or it is advised that you move to a residential home where you can receive care, some life insurance policies will make payments to contribute to this (your medical insurance may also help in these instances) leaving you able to live out your years without worrying about how the care bills are going to be paid.
Life insurance as a source of cash
Again, depending on the type of life insurance you have, there may be an agreed clause in the policy that allows you to “cash” the policy after a certain amount of time. This means that you contact the insurance company and agree that you will forego life coverage and will cease making premium payments to them, and they will give you the accumulated worth of the policy at its present value. These types of policy can, in some ways, be seen as savings accounts, with the added bonus that they guarantee a payment if you die.
In conclusion; why is life insurance important?
It is important for your own peace of mind that you will be covered in the event of accident, your family will not be burdened in the event of your death, your well-being will be guaranteed in your latter years, and finally it could also be a good savings plan.