Without adequate life cover, you could be livin’ la Vida Loca.
In current times it is easy to feel we are indeed living the “crazy life”. Financial pressures are also much more prevalent, and many of us have to review our monthly expenditure. Perhaps it has even been a consideration to try and make ends meet by cutting out the expense of monthly life insurance premiums. If this is the case, chances are it’s best to make another plan. The benefits of life insurance far outweigh the costs, and it is usually much more sensible to be livin’ la vida cubierta – i.e. the covered life.
Here are some reasons in favour of keeping life cover that need to be considered:
If you cancel your cover, you don’t get your premiums back and, apart from the fact that it puts your family at greater risk, you are unlikely to get new cover at the same rates if / when you decide to replace it again. Rates increase as you get older, and health issues are more likely to become an issue. Even if this is not directly applicable, more stringent medical screenings will almost certainly be required.
As with all financial decisions, everyone’s situation is different. To make an informed decision about your personal need for life insurance at your current life stage, consider the following:
- Does your family rely solely upon, or mainly on your income to support their cost of living?
- Do you have a home loan or other debt that cannot be repaid from savings or bond insurance?
- Do you have children who are still likely to require funding for tertiary education?
If your answer is yes to any of the above, you should do whatever you can to hold onto your life insurance.
However, if, for example, you have settled large amounts of debt, your children are self-sufficient, and you have invested wisely over the years, then this may not be the case. Ideally, you should no longer be paying large amounts on life policies after retirement. Instead, with good financial planning, the idea is to have built the capital required to provide the passive income you need.
If you are just looking into acquiring life insurance, it needs to be affordable both at the onset and in the foreseeable future. Make sure you understand how the premium escalations are calculated and what choices you have regarding these.
Your initial premium can be impacted by a number of factors, including not only your age and health status (as previously mentioned), but also factors such as your smoker status and occupation.
Over and above an annual review, it is therefore important to reassess your life cover in the event of changes to these factors and at significant life stage changes. It is also worth continually keeping an eye on how best to maintain the balance between your different financial needs, including the amounts you pay towards your life cover versus other investments.
Let us at WellsFaber guide you through this process with your best interests in mind – so you don’t end up livin’ la Vida Loca.