Life Insurance: preparing for the unexpected

Guest blog by Adriana Lokman, Founder of Isamor 

While contemplating the worst-case scenarios can be difficult, preparing for the future is crucial to ensure your family is protected in the event of your passing. If your family or other dependents rely on your income to cover living expenses or mortgage payments, then having life insurance really is essential. 

In this guide, we cover what life insurance is, why it’s necessary, and the different types to consider.  

What is life insurance? 

Life insurance is planning for the unexpected. It provides a financial safety net for your loved ones in case of your untimely death. That’s why choosing the appropriate type of insurance is vital. Life insurance is all about securing peace of mind for both you and your loved ones. In the event of a valid claim, a tax-free lump sum will be provided to offer the necessary financial assistance and breathing room during challenging times. 

Why is it important?  

In a world where we insure our cars, homes and even our mobile phones, it makes sense that we should be insured for our total replacement value also. Life insurance protects your family financially by paying out a cash sum if you die while covered by the policy. You determine the amount of life cover required and the duration of the coverage, with the option to pay premiums monthly or annually.  

What to consider 

As life is unpredictable, obtaining the right life insurance policy is essential. Start by asking yourself these three questions: 

• What do I need to protect? 

• How much coverage do I require? 

• How long will I need the coverage? 

It’s important to consider your family’s living costs and outstanding liabilities, such as a mortgage. What’s more, as you progress through various stages in life, your need for protection will inevitably change. As such, the amount of life insurance you require depends on factors such as your mortgage status, relationship status, and whether or not you have children. 

If you have dependents, you should have enough protection to pay off your mortgage and other liabilities. After that, consider life insurance to replace a portion of your income. The amount needed will vary, so it’s up to you to decide how much money would allow your family to maintain their current standard of living. 

The life insurance you need should ideally provide a lump sum to relieve any debts and leave enough for investment to support your dependents. If you want to cover your mortgage, choose an amount equal to the outstanding debt. 

Different types of life insurance 

The two basic types of life insurance are: 

Term life insurance – the cheapest and simplest form with no investment element, paying a lump sum if you die within a specified period. 

Whole-of-life insurance – provides coverage throughout your life and pays your dependents a lump sum (usually tax-free) upon death. 

Additional variables to consider: 

• Family expenses and how they would change if you died. 

• Increase in family expenditure on necessities like childcare if you were to die 

• Drop in family income if you were to die. 

• Coverage received from your employer or company pension scheme and its duration. 

• Existing policies and their adequacy in meeting your needs. 

• How long your existing savings would last. 

• State benefits that could provide extra support for your family. 

The impact of inflation on your coverage over time. 

With various life insurance options available, how do you determine the right policy for your needs? 

‘Single life’ policies cater to one individual, while a ‘joint life’ policy covers two people. Upon the death of one person within the joint policy, a payout is made, and the policy terminates. Deciding whether the joint policy pays out upon the first or second death is essential, affecting the policy’s duration. When comparing these options, consider the following factors: 

• Affordability – joint life policies are more cost-effective than purchasing two separate single policies. 

• Cover requirements – do both individuals have identical life insurance needs, or would it be more suitable to have separate policies with varying coverage levels. 

• Work benefits – if one person has a ‘death in service’ benefit from their employee, it may only be necessary to have one policy. 

• Health – if the joint policy includes someone with poor health, this could result in highl monthly payments. 

By assessing these factors, you can decide which life insurance policy best suits your unique situation, ultimately providing security and peace of mind for you and your loved ones. As well as providing a safety net for your family during challenging times, life insurance is a crucial component of a comprehensive financial plan. 

Get in touch 

We’re here to ensure that the people and the things that matter to you are cared for. We can help you face these challenges no matter what life throws at you and help keep your future on the right track. To review your situation, or for any advice, please contact us. We look forward to hearing from you! 

Please note remember that a pension is a long-term investment, the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.