The Basics of Life Insurance

What is life insurance? It’s a matter of life and death
Many people think of their home as their biggest asset, and insure it against damage or loss. But what about yourself? Your own life is an even more important asset. If you die your family may be left to fend for themselves. There may be a home loan to be taken care of, plus living expenses, the household bills and maybe other debts. There’s also the cost of a funeral, coming at a time of great stress and disruption in the family. For them, life continues, and after you’re gone you can help them live it comfortably.

Life insurance is a way to safeguard against the financial stresses that will impact on your family when you die, so it’s insurance for your death. It usually takes the form of a lump sum payment, which is made to your estate or somebody you select as the 2nd owner of your policy.

Even if you have no dependants (for example, your children may have grown up), life insurance is a good way to leave a nest egg for relatives and others you care about.


Is life insurance better than saving or ‘self insuring’?
Some people think they’re better off saving their money instead of buying life insurance. The purpose of life insurance is to provide immediate and long-term protection for the unexpected, and there is no guarantee that saving will provide such protection.

Why? Because in most cases nobody knows exactly when they will die or even what may happen tomorrow. It’s possible you may not be around long enough to save the money your family will need after your death.

On the other hand, life insurance will provide a lump sum payout when you die so whether it be in 2 years or 20 years you can relax knowing there’ll be enough to look after your family.


Your savings may not save them
You may already have savings, investments and other assets tucked away, but they may not be available to your family when they most need them. The legal wheels can turn slowly, and funds won’t be readily accessible until your will has been taken care of (even longer if you don’t have a will!)


So what’s ‘Disability insurance’?
Along with life insurance goes disability insurance, which is paid directly to you. It ensures that if you become permanently disabled, eg you lose a thumb or the use of a limb, there will be some money to cover debts you can no longer pay through earnings, or if you need to change your living arrangements to help you cope with your disability.