The answer varies for everyone; at times, we need a lot and at the best price we can get and at others times of life we don’t need it at all. So, when do we need it?
The answer to this question, is that we need the cover when we are at some sort of ‘risk’. Let’s explore that further because I’m not talking about the ‘risk’ of dying, which we all have at any age, but instead I’m talking about the ‘risk’ of leaving those we have around us behind with any sort of burden.
As advisers when we meet with our clients we ask many questions to work out, firstly, do you need life cover and secondly how much is enough? Things that affect this answer are:
• Do you have small children that rely on you for their upbringing and ongoing education?
• Do you have a mortgage at the bank, that the bank would expect to be paid should you pass away?
• Are you the income earner in the household and if you were to die, how would the family carry on and pay the bills?
• Does your Income need to be replaced for several years should you die, so that your immediate family can continue their current lifestyle?
• Do you need to leave provision for your final expenses, so that family do not have to worry about this?
• If you have a business partner, do you need Life Insurance that provides funds to pay out your shareholding to your family?
• Do you have business debt that would need to be paid back should you die?
You will notice none of these questions revolve around how old are you? Which makes me think that making the statement, “your Life Insurance is likely to be too expensive right when you might need it”, when you are elderly, is not entirely correct.
Although not always the case, we find that clients are at their largest risk, when they have high mortgages, dependents and each pay check is used to its full. Your risk is high when you are in the middle of building your wealth whether by purchasing property or building a business, during this time your debts are high. As life goes on and the children have left and are self-sufficient your ‘risks’ have decreased. The level of Life Insurance at this point may change as your responsibilities have. As life goes on further still, you ‘eventually’ pay off your mortgage and or business debt, and again your need for Life Insurance decreases.
Let me put it another way, if you own a $100,000 Range Rover, then you would insure it for $100,000, if you sell the Range Rover and purchase a Toyota worth $20,000, you would not continue to pay for the insurance on the Range Rover, as this is no longer a ‘risk’ for you.
Life Insurance is there to pay a lump sum should you die unexpectedly; it is not necessarily there for when you die of old age. Just like the Range Rover example, when the risks are not there, then your need to pay for the insurance should also disappear.
Having said that, we have a lot of clients in their older years convert their Life Insurance to a funeral fund policy, or convert it to a level premium so that they can keep it for life and leave these funds to their children. You can even leave your Life Insurance to a charity, which may be a decision once your own risks and need for it has disappeared.