Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.
Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon the death of an insured person (often the policy holder). Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The policy holder typically pays a premium, either regularly or as one lump sum. Other expenses, such as funeral expenses, can also be included in the benefits.
Life insurance is not sexy. It’s not fun to talk about and it’s definitely not a process anyone enjoys. However, much like death and taxes, buying life insurance is an essential part of life and a crucial element of sound financial planning. Most everyone is aware that they need life insurance but, from my experience, most people procrastinate until there is an important life event that pushes them to buy it.
Here are a few other reasons why having life insurance is important, especially if you have debt, married or planning on marriage, have or are planning on starting a family, or you are a business owner.
TO PROTECT YOUR FAMILY AND LOVED ONES
This is the most important aspect of life insurance that one needs to factor in. Your family is dependent on you even after you’re gone and you certainly don’t want to let them down, then life insurance is a must, because it replaces your income when you die. This is especially important for parents of young children or adults who would find it difficult to sustain their standard of living if they no longer had access to the income provide by their partner. You will also need to provide enough money to cover the costs of hiring someone to cover the day-to-day household tasks, like cleaning, laundry, cooking, childcare and everything else a growing family needs.
TO DEAL WITH DEBTS AND OTHER EXPENSES
In addition to providing income to cover everyday living expenses, your family needs insurance to cover debts, like the mortgage and car loans. Any outstanding debt-a home loan, auto loan, personal loan, or a loan on credit cards-will be taken care of if you happen to buy the right life insurance policy. You don’t want your spouse, parents, children or other loved ones to be left with any extra financial burden in addition to the emotional burden they’re already suffering.
TO BRING PEACE OF MIND
Death is unavoidable. In the face of tragedy, the least you can do for your family is to secure their financial future. Even if it is a small policy, you know that you’ve done all you can to help them tide over difficult times. Without a doubt, having life insurance coverage will bring you and your family peace of mind. It’s one thing you can be sure of and you’ll no longer have to question whether they’ll be taken care of when you’re gone. Life insurance protects your heirs from the unknown and helps them through an otherwise difficult time of loss.
TO ADD MORE FINANCIAL SECURITY
Like most parents you probably want to know your kids will be well taken care of when you’re gone. You not only want them to get a quality college education, but to provide for other life ventures like getting married or starting a business. For this reason, additional coverage is absolutely essential while your kids are still at home.
LIFE INSURANCE SUPPLEMENTS YOUR RETIREMENT GOALS
Who wouldn’t like their retirement savings to last until they do? With a life insurance plan, you can ensure you have a regular stream of income every month. Putting money in an annuity is like a pension plan- put in some money regularly in a life insurance product and enjoy a steady income every month even after retirement.
HELPS ACHIEVE LONG-TERM GOALS
Since it is an instrument that keeps you invested for the long term, it would help you achieve your long-term goals such as buying a home or planning your retirement. It also provides you with diverse investment options that come along with different types of policies.
Some policies are tied to certain investment products that pay dividends based on their performance. If you are opting for an investment-linked policy, be sure to read the fine print to be fully aware of the potential risks and returns.
TO LEAVE AN INHERITANCE
Even if you don’t have any other assets to pass to your heirs, you can create an inheritance by buying a life insurance policy and naming them as beneficiaries. This is a great way to set your kids up for a solid financial future and provide for any monetary needs that will arise.
YOU MAY NOT BE QUALIFIED FOR IT LATER
Life insurance policies run on uncertainties. You may be healthy now and paying a premium for life insurance may seem to be an added financial burden, but if you suddenly fall ill, you may not be allowed to but a life insurance policy. Therefore, it is imperative to buy one early on in your life because it remains in force if your health deteriorates later on. Insurance companies allow you to attach certain riders or benefits to your existing or new policy.
These riders enhance the quality of your insurance. The accelerated death benefit rider, for instance, allows the policy owner to avail all or a part of the policy’s death benefit if he or she has less time to live due to a critical illness, or wants to use the money for medical treatment or related expenses.
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