What are some of the common myths surrounding life insurance
The most common question we receive from our clients is “do we really need life insurance?”
To be fair, the answer to this question will depend in each case. In most situations, the question we urge our clients to ask isn’t “do I need life insurance?” but rather “what type of cover and how much do I need?”
At a very basic level, think of life insurance this way: if you stopped working tomorrow, what liabilities and responsibilities would you need to continue to satisfy?
For example, an 18 year old university student financially supported by his/her parents may not require life insurance. In comparison, a 40 year old father of three children working full-time with a mortgage, school fees and bills to pay each month would be in a lot of trouble should they be injured or unable to work. Worse yet, if they were to pass away, imagine the strain on their wife and the rest of the family? If the wife is a stay-at-home mother, for example, she would be forced to find full-time work to attempt to cover these ongoing expenses. She may be forced to sell the house. It is painful to even think about these dreadful scenarios in hypothetical, but it is important to do so.
So to answer the question of do you need life insurance, have a think about how your dependents would be affected if you were no longer around.
Another comment frequently made by clients is “I’ve got insurance cover elsewhere, I don’t need to worry.”
However, does this person know what type and amount of cover they have? Do they know what they may not be covered for? Whilst having cover is important and better than none at all, having the right cover – that is, the cover most appropriate to you – is even more important. At Wealth Depot we can help review your existing insurance policy to ensure it is adequate to meet your needs. We’ll also look at the fine print to check important details such as whether your cover will be underwritten at claim time or whether it is processed at time of application. What about whether the proceeds are going to the correct person? If your circumstances have changed (ie. divorced and have a new partner) you may need to update your policy to make sure it is still appropriate and affective for the circumstances.
Another myth that needs to be debunked is the belief that social security in the form of the Disability Support Pension (DSP) is enough cover without the need for insurance.
The hard truth is that DSP is currently less than 30% of the male average wage and only 15% of current applicants are granted DSP while the majority of applicants are rejected. So any reliance on social security in lieu of insurance is a very risky approach to take.
Finally, people tend to think that mortgage repayments, car loans, savings, and investments are far more important and beneficial ways of spending money than insurance.
In a perfect world, this would be completely correct. However, the bottom line is that if you are seriously injured or die, it may be impossible for these continuing goals and needs to be attained. So, whilst a mortgage may appear to be a better investment than insurance, it’s important to remind ourselves of why insurance exists in the first place.
It is alarming how many people know very little about life insurance, do not have life insurance or do not have adequate cover. Putting into place a solid insurance plan is not only a prudent thing to do, but it can save you money in the long run as you near old age and your debt may reduce and asset value may increase.
So please, if you have any questions about life insurance, are curious about how it could work for you or just want to find out more, please get in touch with our friendly team at Wealth Depot!
Source: MLC – ‘Life Insurance Myths Busted’