As a homeowner, do you need life insurance?
No one likes to imagine what would happen to their loved ones in the event of their death. But sometimes, the unthinkable does need thinking about.
If you have children, a partner or other dependents who rely on you to pay the mortgage on your property, then you should consider getting a life insurance policy.
What is life insurance?
Life insurance policies pay out in the event of your death, providing your family with a much-needed financial safety net. The amount depends on the level of cover you take out, and you can choose whether it will be payable as a lump sum or as a regular monthly income.
There are two main types of life insurance:
• Term policies last for a set amount of time such as 10 or 20 years. The length of the policy is often linked to the remaining time you have left on your mortgage. The policy will only pay out if you die while the policy is active.
• Whole-of-life insurance policies are more expensive, but they will pay out in the event of your death, for as long as you carry on paying the premiums.
How much insurance should I take out?
The amount of cover will depend on your individual circumstances, such as the amount of mortgage you still have outstanding, and whether or not you have savings that your family could fall back on in the event of your death.
As a general rule of thumb, many people choose to cover themselves for 10 times their salary, or more if they have significant financial commitments.
Whatever amount you choose, you should review it at regular intervals to ensure it still reflects your needs and those of your family.
How much will it cost?
The cost of life insurance varies according to your individual circumstances and the type of cover you choose. Non-smokers usually pay lower premiums than smokers. Younger people often pay less too.
Life insurance is generally very affordable, and you may find that you can get a good policy for less than the price of a cup of coffee per day! But monthly payments do vary, so it’s always good to shop around.
Good to know
Life insurance only pays out if you die. A separate policy must be purchased if you wish to be covered for illness or disability.
Most policies have certain things that they don’t cover, which are known as exclusions. For example, your policy may be deemed invalid if your death is the result of a pre-existing condition, suicide, drug or alcohol abuse.
If you have a partner, it’s worth thinking about life insurance for you both, even if only one of you works. After all, how would your family cope if the stay at home partner died and the surviving partner became responsible for childcare and therefore unable to work full-time?
If you’re employed, check whether your employer offers a ‘death in service’ benefit. If they do, you may not need additional life insurance, as you would receive a multiple of your salary if you died during your time with your employer.