Here is another question that came through to us recently and 2 different points of view as to the “right” answer:
QUESTION: What is the least amount of life insurance that I could get away with when I have a mortgage?
ANSWER:
View 1:
Nothing. Some people think that you have to life insurance as a requirement by the lender (bank) if you have a mortgage. Generally this is not true so in affect the minimum you can “get away with” is nil.
View 2:
The amount of life insurance that you need depends on what you want to happen financially if you should die and what your budget is able to accommodate. In order to identify what you want to happen should the worst happen it is recommended that an Adviser completes a formal “Needs Analysis”. There may be some things that you hadn’t thought of and there may be something things that are totally unique to your personal situation.
If you have dependents (spouse and children) you would generally not want them to be left the burden of having to pay off debts, your funeral expenses and to be able to have time off work to adjust to your loss. If you are self employed you are likely to have other commitments as well such as Creditors to be paid, replacements to need to be found in order to keep the business going and credit facilities that you are guaranteeing to be paid in full. The list of what you want to happen could be quite extensive and it is imperative to identify how these wishes and expectations are able to be fulfilled.
Sometimes, though, the recommended level of cover can be too expensive to accommodate the budget. It is possible to alter the type of life insurance cover or (as is more common) the amount of cover that you take out. Having a smaller amount of cover is far better than having no cover at all. Even a small amount of cover can allow those left behind the resources to take their time to make the necessary changes that your death may bring about.
Having a plan in the event of your death is a responsible and practical way to address your financial and personal obligations. This plan does usually include having life insurance as most of us do not have the cash resources to be able to pay the financial commitments that continue or worsen in the event of a person’s death. It is best to know from the start if your level of life insurance cover will mean that those left behind will have to make adjustments to their lifestyle and to discuss this with them beforehand. Remember that if your loved one is receiving a life insurance payout for you, they will be in a state of grief and may not be thinking too clearly so having a sound plan that has been agreed upon in advance can still ensure they are protected should the worse happen.
