Life insurance brings rewards

Question: I have a young family and I’m being given conflicting advice on whether life insurance is a good investment right now. Some say its a waste of money and have suggested other investment options. Others tell me that my family, in the event of some mishap, will be better off. What is my best bet ?    

A: The answer to your question can best be summed up by  looking at the four myths of life insurance. This may help to convince you that you need some sort of coverage.   

Myth No 1: I only need life insurance if I am the primary breadwinner in my family. Whether or not you work, your family will miss your contribution to the household if it disappears. If you do work, even a modest income may help fund important items and family activities. And though stay-at-home parents may not provide a cash income, they often provide valuable services such  as childcare, cooking, house cleaning and household management, the replacement costs of which are often severely underestimated.

Myth No 2: If I buy a term policy and find that I still need protection when the term ends, I can always renew the policy. Term policies are quite popular with many young families, and for good reason: they typically offer the greatest coverage for the lower cost. Term insurance provides protection for a specific period of time (the ‘term’), and can be ideal for people who feel they have temporary needs, such as a mortgage or a child’s education. However, many families realise that even after the kids are gone, their need for insurance continues — to provide income for a surviving spouse, eliminate debts, pay taxes, etc. Because premium rates increase with age, renewing your policy when the term expires can be prohibitively expensive. Moreover, poor health may make renewal impossible.

Myth No 3: I only need life insurance when my kids are young and my financial obligations are the greatest. There is no question that insurance needs are great when your children are young, with college planning, mortgage payments and the costs involved in raising your kids. But for people with insurance needs later in life, permanent insurance is often a good choice. In addition to providing the opportunity for lifelong protection, permanent policies accumulate cash value that can be borrowed against or withdrawn, though doing so may affect the death benefit and have tax consequences. Although permanent insurance premiums are generally higher than term premiums when first purchased, they typically do not increase over time and can stop completely later in life, even as your coverage continues, depending on your policy.

Myth No 4: I can get a better rate if I invest my money elsewhere. While the first and foremost reason for any life insurance purchase is to provide protection for your family, permanent insurance policies provide a cash accumulation value that grows over time and can be borrowed against.  And contrary to what many people believe, long-term rates of return on the cash value are generally comparable to relative low-risk investment products. Because understanding rates of return is often difficult, the best way to find the right products for your needs is with the help of a qualified insurance agent or other financial adviser.