Life Insurance - To Buy Or Not To Buy ?

What are the financial consequences of dying young or of living too long? Or of just growing very old? The financial consequences of an early death are obvious: they are not unlike the consequences of permanent total injury or disability. Also, there may be other sources of financial problems such as :-

- life may continue for longer than expected
- future income may dry up to meet recurring expenditure
- unexpected liabilities may arise
- inflation or taxation may reduce expected spending power

Many people choose the purchase of life insurance [be it traditional or investment-linked] plans or annuities as the most efficient means of making provision for uncertain future.

Whatever it is, the best approach is by looking at a household's plan for the future and then examine the events that could frustrate those plans.

Take for e.g. a couple where the husband works and the wife stays at home to look after their 2 kids. The family should take account of the following :-

the implication of the death of the husband
- permanent loss of his income
- need for the wife to return to work
- the length of time before the wife could return to work
if the kids were not yet in school
- the need to engage maid to care for the kids
while mum is at work etc

implication of the death of the wife
- same for the husband, but with extra emphasis on the
need to care for the kids while husband is at work

implication of the survival of husband and wife
- the need for an adequate income for retirement
- the need to provide for nursing and/residential care in old age
- the need to plan for contractual liabilities and debt repayment, if any
- the need to plan for future spending
- the provision of an inheritance for their children.

Once the possible consequences of early death or extreme old age have been identified, they must be measured. For e.g. how much income would be lost if the husband should die? How long would it be before the widow could return to work? How much would she earn?

Nonetheless, the decisions on whether or not to undertake the financial risk by investing in life insurance or annuity, and how much cover to take up, will be influenced by couple of factors such as :

- taxation for premium and benefits
- protection of dependents against premature death
- the provision of an income on retirement etc

Enquiry on how you can go about mapping out a financial plan for you and your loved ones are most welcome.