Life insurance (or any kind of insurance for that matter) is not a fun subject. Don’t believe me, bring it up during a party and watch how quickly the crowd around you disappear.
Ever wondered why people dislike life insurance so much? Well based on my personal experience and observation, I would say the 2 top reasons are: One: it’s too complicated no one understands it. Two, it costs too much! Also, the fact that life insurance deals with death and sickness does not help. Too morbid! If you ask any insurance agent, they would say, “you need it”, so what is there to not understand?
Sure we can be suspicious of them but you know… they are right. Insurance (sadly) is that necessary evil we all hate to admit is important, and that we all need in order to safeguard ourselves and the ones we love against financial pitfalls. If you think life insurance is too complex, yet do not have the time to read up on it to understand why, here’s a simple guide for you. Take heed, if you fall into any one of these groups, you need life insurance.
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Breadwinner: The member of a family who earns the money that the family needs.
If you are the breadwinner i.e. provider for your family, you need life insurance. This is to ensure that if the most unfortunate of circumstance were to happen to you tomorrow, your spouse and children will be taken care of financially.
People say that you only need life insurance if you are the main breadwinner of your family. This is not entirely right. In this day and age, where even two-income households struggle to make ends meet, both partners should take up life insurance.
Mortgage: A loan given by a bank, mortgage company or other financial institution for the purchase of a primary or investment residence.
If you have a mortgage for your house, you need life insurance. This is to ensure that your family does not have to lose their home in the event of death or total permanent disability (TPD). Nothing can be more tragic than your loved ones having to move out of their home during the time of their bereavement.
Another option that you can choose is MRTA (Mortgage Reducing Term Assurance) or MLTA (Mortgage Level Term Assurance). Although these options are not compulsory during the application for a mortgage, it is highly recommended especially if you do not already have an adequate life and medical plan.
You may be single and never plan on getting married. Nevertheless, you may still have others who rely on you financially. Such as aging parents or a special-needs sibling.
Your beneficiaries do not always have to be your spouse or your children. In the Asian culture is it a norm for adult children to care for their parents. In such a case, you should make sure that your parents or other dependents can continue to receive the care that they need should you pass on prematurely.
If you are a business owner, your family may end up with the business debts when you die. Having a life insurance ensures that your beneficiaries are not burdened by these debts. The pay-out from your life insurance plan can be used to pay off your debtors and estate taxes.
If you are in a partnership, a specialized life insurance called the Key man or key person insurance can help surviving business partners keep the business afloat with the death benefit. While a buy-sell arrangement allows the business partners to buy out your share when you die.
Have you thought about what would happen to your unpaid credit card debts, your personal loan or car loan when you die? Many don’t. And those who do usually assume that these debts would be cancelled. Not quite true.
What happens to the loan or debt depends on several factors, which includes: Is it a secure or unsecured loan? Is there a guarantor? Is there any possession in your estate left behind when you die.
Secured loan : a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan (www.wikipedia.org).
Unsecured loan: a loan that is issued and supported only by the borrower’s creditworthiness, rather than by any type of collateral. (www.investopedia.com)
Depending on the factors above, banks or creditors have the following options:
a. give the beneficiaries the option to take over the loans and transfer the assets to their names
b. go after the guarantor who will have to continue with the loan
c. sue the estate of the deceased to recover the amount owed to them
So having a life insurance can help pay off all your loans and debts either secured or unsecured so that those you leave behind do not need to be burdened by them.
Still unsure if you need life insurance? We recommend doing some research before making a decision. Speak to several trusted insurance or Takaful agents if you need more information about life insurance. You can find reliable agent on iBanding’s directory here.
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