Most people regard life insurance with mixed feelings. While many feel that it is a necessity, there are others who are confused by the choices available.
We debunk some myths about life insurance and help you consider some important factors.
Myth #1: It’s difficult to decide how much life insurance I need
Figuring out how much life insurance you need might require some planning and calculation, but it isn’t a task that’s beyond you.
One approach is to add up the expenses that you’ll want covered for your loved ones, over a set period of time, if you weren’t able to provide for them. For example, you may want your life insurance to pay off the mortgage, kids’ education, and living expenses for your family for 10 years.
A professional financial adviser will be able to help you map out an appropriate level of coverage.
Understanding how much life insurance you need requires planning, but it is something that you can easily do by yourself or with expert help.
Myth #2: I’m young and single so I don’t need life insurance
Even if there’s no one financially dependent on you, a small amount of death cover may still be needed to cover your debts e.g. student loans and credit card bills.
You should also consider critical illness and disability coverage to take care of your living expenses and bills, in the event that you aren’t able to work.
Other reasons to buy while young include locking in the lower premiums, and ensuring you get full coverage before you develop any health problems later on in life.
Even if you are a stay at home mum, you need to think about life insurance. Someone will have to be paid to take over all your responsibilities in the household in the unfortunate incident of you no longer being there.
Myth #3: I’m a stay-at-home parent so I don’t need life insurance
A stay-at-home parent has many responsibilities such as taking care of the household and children.
The uncompensated labour of stay-at-home parents often extends far beyond household chores and child rearing. In the unfortunate event that you are no longer able to physically support the family – possibly due to illness, death or disability — the family will have to seek alternative arrangements, such as engaging a domestic helper or paying for day-care and tuition services.
While your contributions are not monetarily remunerated, if you are unable to continue contributing, your family will suffer financially because they will require additional funds for these extra services that you are no longer able to perform.
Insurance pay-outs in the event of such unfortunate circumstances, can be crucial.
Myth #4: I bought life insurance years ago, so I’m safe
Your sum assured then may not be enough to cover yourself now or in the future, thanks to a little thing called inflation. According to Singstat (2013), Singapore’s annual inflation rate averaged 4% over the last five years. Assuming a flat inflation rate of 3% per annum, $100,000 today will only be worth $55,000 in 20 years! This is one of the many reasons you should review your insurance portfolio regularly to ensure your coverage is still sufficient.
Life’s many milestones can also affect your coverage needs. While there’s no ‘ideal’ time to review your insurance portfolio, you should do it at least one a year to ensure that your portfolio still matches all your needs and expectations.
Have you opted for life insurance? Do you think you don’t need it? Share with us why in the comments section below.
This post was brought to you by Aviva, one of the leading insurers in Singapore.
This article was first published on Aviva’s Money Banter blog – for more useful tips and guides on financial planning subscribe to their free monthly-e newsletter!