When considering to take out insurance we do it for 2 reasons
1) We think something is likely to happen
2) We would be financially compromised if something did happen.
If something is likely to happen then we need to ensure that we plan for it. For example we know that it is very probable that we would have a household item break. The Probability is greatly increased with the presence of children and other untamed pets but the financial impact of the loss would be fairly minimal. So we may decide to insure against only if something major was destroyed or the entire household contents were lost to some disaster like a fire.
However if you look at the possibility of something happening to our car, eg an accident or theft, the financial impact of the loss of the car would be quite high as we would have to replace it. The probability this would happen is fortunately low - moderate. It is for this reason that we are likely to insurance our vehicle against damage or theft to it’s full value so that we would be able to replace it quickly with little or no cost to ourselves (other than the ongoing premiums).
Perhaps the most severe impact financially on any household is the death of a family member. While the probability of death is 100% certain - it is the early departure of the individual that would offer the most severe financial risk.
The older we get we generally have the benefit that our financial commitments diminish. The mortgage may be gone, the children all grown and gainfully employed and there are savings in the bank – hopefully! So if we did go or when we did go the financial impact of our death would hopefully be minimal.
However the affect is far greater when we are younger. There may be mortgages to pay, children to support and little to no savings for emergencies! It is for this reason that we take out life insurance. Life insurance can clear debt, pay funeral expenses, provide an income for the remaining family members, provide financial resources for dependents education, medical requirements and other costly expenses.
Even if there are no children the remaining spouse may have specific financial needs. Often mortgages are taken out and reliant on 2 streams of income so if one goes then the remaining spouse is at risk of having to sell the property because they can no longer afford the mortgage payments. The thought of someone losing their spouse and then faced with the harsh reality of losing their home seems unthinkable.
The good news is that insurance agencies generally assess probability and also apply this rule to their premiums. A younger person with a healthier lifestyle may have high financial obligations but they are a good insurance risk because it is unlikely they will not die for years to come.
While the Probability of an early departure may be low we still need to ensure that IF the worst should happen, those left behind are not having to deal with the added devastation of a huge financial loss.
