Why Families Shouldn't be Without Term Life Insurance

My father died when I was nine.  He left behind my mother and four children aged between seventeen years and nine and no money.  Sure I missed him but at nine I didn't really have much idea about death or loss.  I know it sounds selfish but what I really missed was our old lifestyle.  We had to move house because we lived in a company house and couldn't stay there anymore.  We had to give up our car because that was provided by the company too.  All we could afford was a run down council house.  It was small and cramped and didn't have much in the way of fences so we felt we had neighbours right on top of us.  This was all salt to the wound of our grief, all these niggly things that had now become our life.  I don't know why my father didn't take out life insurance, all I know is that he didn't and we bore the consequences of that decision for a long time.

It has made me wonder why so many people roll their eyes when the words 'life insurance' are uttered out loud.  Sure I can understand not wanting to contemplate a scenario that would require you or your family to actually need it but that is no excuse for ignoring it altogether and not planning ahead.  Imagine, just for a moment, your family’s life if the worst was to happen and you didn’t have life insurance?

The purpose of life insurance is to guarantee an income to your spouse and children if you were no longer able to contribute to their welfare like you do now.  Think about it, if something were to happen to you, could your family afford to live in your current home? Would there be enough money to maintain their current lifestyle? Would the cost of a funeral become a burden? Would your spouse be able to support your family easily?  Or would the stress and grief and financial burden of loosing you cause unendurable hardship for them?

Maybe you think that because you have saved and invested wisely and setup a solid foundation that despite missing you, your family would be OK financially.  The reality is that it is unlikely.  This is particularly true for families with young children.  This is often a time where families are still struggling to become established and often debts are high, savings low, caring for children is costly and income may not be at its peak or perhaps one partner is out of the workforce to care for the children.  Of course, it is this time when funds are often stretched that life insurance is most needed but often that very fact puts families off from the regular commitment of insurance premiums.

But the good news is that it makes you a good candidate for term life insurance because it is the most inexpensive form of life insurance around.  The premiums for term life insurance are worked out based on your age and health and is usually purchased in terms of a specific number of years – 1, 5, 10, 20 or whatever period you would prefer.  The upshot is that term life insurance has the highest coverage for the lowest premiums.

While term insurance is not ideal for older individuals as prices go up substantially with age, it is the a great solution for younger couples or families who have high debts including mortgages, life expenses and dependants. The insurance can cover you while your children grow and the mortgage is paid off.  By the time the policy expires you will more than likely have invested, paid off your major debts and no longer have dependants.

So Who Needs to be Covered with a Life Insurance Policy? Given that insurance is really about income protection – providing funds when you can't – you would normally cover whoever is contributing to the family finances.  So first up, make sure the primary income earner is covered.  If this income disappeared then you want to make sure the ongoing family needs are covered.  

But don't stop there.  If your spouse looks after the children full-time and something were to happen to them, how would you fund childcare?  Insurance could cover that additional cost.  So if any secondary income is relied on to cover expenses either through income or an unpaid contribution then that person should also have an insurance policy.

Do you need to get life insurance for your children?  Generally, this is only advised if you can't afford funeral expenses (generally about $5000).  Otherwise, there is no reason for children to be insured as they do not contribute to the family income.

Having life insurance not only gives you peace of mind knowing your family will be taken care of after you or your spouse has gone, it may well be one of the best financial decisions your family could make.