When was the last time you had a sparkling conversation about life insurance? To be fair, it is not something most of us want to think about too often. However, despite our reluctance to discuss them, protection policies such as life insurance are not insurances we should buy once and never think about again. The sad reality is that most of us forget to update our insurance cover when we experience life-changing events, even though this can leave you and your loved ones in financial difficulty, should the worst subsequently happen.
You are more than likely going to experience a life-changing event at some point in your life, if not multiple events. Take note of the following life-changing events, all of which result in a change of circumstances and therefore insurance needs:
1. You take out a joint mortgage
When you buy your first property, it is likely your mortgage provider will impress upon you the need to purchase some form of life insurance. This is because the bank will want an assurance that, if you die, your mortgage will be repaid in full.
If you buy a home with a partner, it’s even more important to ensure you have enough protection in place to cover your share of the mortgage debt.
If you don’t, your other half could end up being pursued for the entire joint mortgage, should the worst happen.
2. You get married or enter into a civil partnership
When you make the commitment to spend your life with someone else, it is likely this will also mean you spend your money jointly (although not necessarily in equal amounts!).
Entwining your finances with a partner’s can affect the level of life insurance cover you need.
If you rely on pooling joint incomes to pay your household bills, it is important to ensure both partners’ contributions to the family finances are properly protected. Otherwise, should one of you pass away, the person left behind is likely to experience money worries, as well as heartache.
3. You have children
In 2009, the New Zealand government calculated that it costs an average of $250,000 to raise a child to age 18 years for a middle income family and this does not include any contributions towards further education nor the lost income of having a ‘stay at home parent’.
Even if both parents in a family work, costs like these can be difficult to cover.
However, if one of the incomes you rely on was lost, the right life insurance cover could make a real difference to the surviving partner or loved ones left to bring up your family.
Also, don’t forget to review your life insurance needs as your family grows. Looking after a family of three or four children will cost significantly more than meeting the needs of an only child.
4. You have other, non-mortgage debts
If you have outstanding borrowing on personal loans and credit cards, it is important to understand that these will have to be repaid out of your estate (the wealth you leave behind) when you die. It is a good idea to ensure you have enough life insurance in place to cover such debts, especially if you have dependants who rely on your income to survive. If you don’t, your family will have to deal with your creditors after you’ve gone.
5. You get a new job
If you are lucky enough to be offered a new job and an increased salary, you may need to increase your life insurance cover.
This sounds contrary, and it is easy to assume being better off might mean you would need less, not more, life insurance - but remember, most people become accustomed to the lifestyles they lead.
If a career move means the start of a more affluent standard of living for you and your family, it is worth considering how they would maintain this if your income was lost.
Also, it is worth checking the terms and conditions of any new employment contract you sign. Some jobs may offer a degree of income protection as part of your package.
6. Your health or lifestyle changes
A change in health or lifestyle may enable you to remove a premium loading. For example, you may have taken out life insurance and been a smoker at the time. You may have since given up smoking and so, depending on your policy and how long ago you gave up smoking, you may be able to remove a premium loading from your policy. Another example is where you may have changed jobs from what was classed as a high risk job, to now a lower risk job.
Please contact us if you would like to discuss your life insurance or any other key insurance policies. We will happily assist you to ensure the appropriate level of cover is in place for you and your family.