Should life insurance be a part of your wealth journey?

The purpose of taking an insurance policy is to secure your assets. This is a necessity especially when you are the only earner in your family or if your family is solely dependent on your income.

A life insurance policy ensures that your family is well prepared financially, is able to build assets and is able to overcome any financial crisis in your absence. Including your assets in the life insurance policy should be a part of your monetary plan.

Insurance policies take into account a wide assortment of needs like:

  • Planning for your retirement.
  • Saving for a particular goal in future.
  • Planning for your kid’s education.
  • Ensuring a stream of income, increase in the loss of your capacity to gain.

Benefits of taking a life insurance
There are numerous benefits of taking a life insurance, some of which are given below:

Steady Investment Option
A life insurance plan does not only act as a replacement for  loss of income, but also as an investment instrument that offers huge profits for the measure of premium paid during the policy tenure.

Few life insurance plans offer extensive returns at the time of maturity. This not only helps you accomplish your investment objectives but also ensures the financial safety of your friends and family.

Assured income through annuities
Life insurance is one of the best choices when it comes to retirement planning. It offers pay-outs as annuities. In simpler words, it acts as your monthly pension after you retire.

Tax free income for your family
If you have been savvy with your cash and funds throughout your lifetime, you are most likely to own a lot under your name. Given a situation, where after you death, a portion of your estate that your family inherits is liable to an estate tax. The amount you pay as tax is dependent on the amount your family inherits. However, life insurance policies are completely exempt of taxes and could be easily inherited by your family.

Types of Life Insurance Policies: Fundamentally, there are two types of life insurance policies:

  • Term Life Insurance
  • Permanent Life Insurance

Term life insurance
It is a life insurance that covers you for a particular measure of time, typically one to 30 years. When you have term protection, you pay a protection premium for the measure of time you have asked for coverage. In case, you happen to pass away while the policy is still in force, your family will get the demise advantage.

This type of life insurance policy is more affordable as compared to permanent life insurance policy.

Permanent life insurance
This policy will never lapse, as long as you pay your premiums regularly. With this kind of policy, you can get a level demise advantage along with the possibility of building up cash value after sometime. Because of these characteristics, premiums of permanent life insurance policy are quite expensive than the term life insurance policy.

Choosing the correct insurance policy is important for you, otherwise it can lead to severe losses. PPI is one of the biggest examples of this negligence that hit the financial sector in the UK. It led to billions in compensation with many customers being eligible for a PPI reclaim, with people still getting money back from the banks even now.

Factors that affect your life insurance premiums:

Your age
Most experts recommend that an insurance policy should be taken out at a younger age, as it would lead to lower premiums.

Your health history
If you have a chequered medical history, you might have to deal with steep insurance premiums.

Your current health
Experts recommend having a complete medical check-up done before taking an insurance policy. The reason behind this is that you will be aware of your health issue that may cost you a fortune in the near future.

How much insurance does an individual need?
At a minimum, you must get a life insurance that provides death advantage which should not be less than ten times of your yearly pay.

One of the simplest ways to calculate your insurance needs is by utilising the D.I.M.E principle. D.I.M.E stands for Debt, Income, Mortgage and Education. The total of all these elements gives you a brief idea of how much life insurance you will require in your lifetime.

When should you get a life insurance policy?
Like we have mentioned earlier in this article, the ideal time for taking a life insurance policy is when you are young, strong and can bear the cost of it. Nobody can anticipate the future and majority of people who are healthy today can have medical issues in future. This may lead to two situations,

  • It either makes them uninsurable
  • Or the insurance premium become very expensive

Insurance has a tendency to be less expensive when you are young and can afford the cost of it.

In future, if you require more insurance, you can contact an insurance agent and ask them to expand your present coverage or offer you some extra policies to meet your family needs.

Scroll to Top