Why get life insurance?
[social_share]It can often be confusing as to why people need life insurance. But if this is understood, it becomes clear what sort of life insurance and how much is most appropriate.
The reason to purchase life insurance is to ensure that dependents will be cared for if anything happens to the wage earner. It’s not always certain what will be covered in a will, and in any case it may be obvious that any such amount will be insufficient. Life insurance provides some certainty.
The most obvious people who need life insurance, therefore, are people with dependents. This is usually children who have not yet left home, often called dependent children. But it can also include children who have grown up but are not yet earning enough money to support themselves fully, or a spouse who stays at home to care for children and who is unlikely to earn a large salary. In these cases life insurance provides considerable peace of mind to a wage earner worried about what could happen after their death.
There can be other sets of people who depend on someone, and some of these groups can be surprising. Even if there are no close relatives, life insurance may be necessary to cover funeral costs and other costs related to a person’s death. There may also be a need for life insurance to cover a home loan or a business loan, to ensure the lender will be repaid if the borrower dies. Some employers also take out life insurance on what are known as key employees, with a type of policy often called key man insurance. This is both paid for and pays out to the employer, and some employees are never aware of the fact that insurance has been taken out on their life.
There are three important things to consider when purchasing life insurance: the payout, the term of the policy, and the conditions under which the insurance will pay out. These in turn affect the premiums paid, and this in itself can be another factor to consider by a person looking for life insurance.
