Do I Need Life Insurance?

Written by Ruth Njiri

Let’s be real, sometimes taking about and preparing for your death may seem like admitting to the possibility that you can die early. Therefore, activities, like writing a will and buying life insurance, fall into that presumptuous gray area.  But truth be told, preparing for your death is not a bad, but a smart thing to do.

Do I Need Life Insurance?

The answer is Yes! You need life insurance especially if you have dependents, such as; school age children, a partner who relies on your income or a family living in a house with a mortgage that you pay.

Life insurance can also pay your bills and support you in the case of a fatal accident as well as pay your dependents money as a lump sum or as regular payments if you die.You might also want a policy which covers your funeral expenses.

Life insurance is designed to provide you with the reassurance that your affairs and dependents will be looked after if you are no longer there to provide. So, the amount of money paid out depends on the level of cover you buy. You can also decide how it is paid out and whether it will cover specific payments.

What is Life Insurance?

A life insurance policy is a contractual agreement with an insurance company, in which they agree to provide a lump-sum payment, known as a death benefit, to beneficiaries upon the insured’s death in exchange for premium payments paid after a set period, for instance monthly.

In the event that you die, the insurance company pays your family, or whoever you named as the beneficiaries, the amount of money specified in the policy.

Simply put, a life insurance provides the financial means to preserve your family’s lifestyle, in the event of an accident, serious illness or even death.

There are two main types of life insurance:

  1. Term life insurance policies run for a fixed period of time (known as the ‘term’ of your policy) – such as 5, 10 or 25 years. These kinds of policies only pay out if you die during the policy. There is no lump sum payable at the end of the policy term.
  2. A Whole-of-life policy, also called permanent policy, will pay out no matter when you die, as long as you keep up with your premium payments. They pay out at a particular period of time, maybe 5, 10 or 20 years. This type of policy never expires. You either pay it all at once, which is very expensive or in installments, which is also very expensive but lasts for the duration that you’re alive. It, therefore, provides lifetime coverage.

What is the advantage of term insurance policies:

Term life insurance policy proceeds can be used to replace lost potential income during working years. This can provide a safety net for your beneficiaries. It can also help ensure the family’s financial goals will still be met, such as paying off a mortgage, keeping a business running, and paying for school.

What is the advantage of permanent insurance policies:

Permanent life insurance is most often used as part of a flexible planning strategy to help preserve wealth to be transferred to beneficiaries. It is also used as long term income replacement, where the need extends beyond working years. In addition, life insurance could be used to help pay off debts accumulated in your lifetime or it could help your family with everyday living expenses or child care costs. It could help cover funeral expenses too.

Life insurance, in general, could be used to help pay off debts accumulated in your lifetime or it could help your family with everyday living expenses or child care costs. 

The price you pay for a life insurance policy depends on a number of things. This include:

  • The amount of money you want in your cover
  • The length of the policy
  • Your age
  • Your health
  • Your lifestyle

The major benefit of a life insurance policy is that they have an investment element, meaning that some of the money can be invested in the stock market or taken out as a cash loan. This means that you still have the option to access the money while you are still alive.

So it is important to get a life insurance policy because you can never be too sure about what tomorrow will bring. The best thing is to have a backup plan for your family and loved ones to manage.

Learn more:

How Much Life Insurance Should You Carry?


About the author

Ruth Njiri