A young families guide to personal life cover.
Life Cover: A Guide to Protecting Your Family’s Future.
Life is full of unexpected twists and turns, and as parents, you know that taking care of your loved ones is your top priority. One way to ensure their financial security in case of the unexpected is by arranging life cover. But what exactly is life cover, and what affects the cost of it? In this article, we’ll break it down in simple terms so you can understand it and protect your family’s future.
Understanding Life Cover
Life cover, also known as life insurance, is designed to provide your family with a lump sum payment if you pass away during the policy term. This money can help your loved ones cover essential expenses, childcare, education, and daily living costs.
If you have a mortgage, you will be required to have mortgage protection cover. At Ferris Financial, we always recommend having two plans. One to protect the debt, and this money will likely go straight to the bank if you were to die, and a separate plan that will go to your family.
Before we get into it – take a few seconds and consider this. If I were to hand you a cheque and you had to fill in the amount yourself, and I will be hold onto it. But if you died, I was going to give this cheque to your partner. How much would you write the cheque for? Now ask your partner how much they think they would need? Is there a difference? The amount of life cover you need, in my experience, is likely closer to the higher figure of the two.
By the way, if the answer was nothing, then you don’t need life cover. But it probably wasn’t zero, was it!!!
Here’s how it works:
What Type of Cover Do I Need: At Ferris Financial Planning, we recommend Term Life insurance as a suitable option for young families. Term life insurance provides a fixed amount of cover for a specified period. Time-wise, we believe having a plan until your youngest is 25 and through 3rd level is a good idea.
At the time of taking out the plan, you can opt to have the plan stay the exact same or increase each year with inflation. You can also look at conversion, which allows you to extend the plan in the future without having to answer any more medical questions.
How Much Do I Need?: To determine the right amount of cover, ask yourself how much your family would need to clear debts, car loans, and any other loans. You should also consider your children’s future education expenses and monthly bills.
I have cover with my job; I don’t need it. This is a common objection that I hear. At Ferris Financial, we believe it is a good idea to have some personal cover that you control regardless of what your employer offers. You may not always work for your employer, and your next employer may not offer this benefit. You will then be older, which will mean cover will cost more. Then, if your health has changed in any way, you may be looked at an increase in the cost of cover or being declined outright for it.
What Does It Cost?: The cost of premiums depends on factors such as your age, health, and the coverage amount. The younger you are, the cheaper it will be. If you smoke, this will add to the cost of the plan.
Who Gets the Money?: For personal cover, it will go to your family. If the cover relates to a mortgage, the bank will have required you to assign the plan to them. This means that the bank will get paid first, and if there is any money left over, it will then go to your family.
Choosing the Right Policy
When selecting a life cover policy, consider these key factors:
Affordability: Ensure that the cost fits comfortably within your budget. One thing I always tell my clients. You don’t want to be sitting in on a Friday night and not be able to pay for a pizza and a bottle of wine. Life is for living but equally you also have to be realistic if you are not around next week how are your family going to pay the bills.
Term Length: Choose a term that aligns with your family’s financial needs. We recommend having the plan run until at least your youngest child is 25.
Additional Benefits: Plans offer additional benefits like critical illness cover, which provides a pay-out if you’re diagnosed with a serious illness. Ferris Financial Planning believes everyone needs some level of critical illness cover.
Review Plan: As your family grows and your financial situation changes, revisit your life cover policy to make necessary adjustments. The family may have grown larger, you may have moved jobs, all reasons to review your plan.
Conclusion
Life cover is crucial to secure your young family’s future. It provides financial protection and peace of mind, knowing your family is protected if you are not around. By understanding the basics, considering what it costs, you can ensure that your loved ones will have the support they need, even when you’re no longer there to provide it. Take this step today to safeguard your family’s tomorrow.
Please get in touch Richard@ferrisfinancialplanning.ie
Thanks
R
