How does life insurance take care of my children?
Life insurance, says the old joke, is a policy that keeps you poor all your life so that you can die rich. Naturally, the first part of that sentence shouldn’t be true – if you’re paying so much for life insurance that you have to sacrifice life’s pleasures you’re definitely with the wrong insurer. But, the joke’s funny because it shines light on the crazy notion of dying rich – what use is money to you when you pass from this material world? The truth is, money loses all value to you the day you die, but it’s value to those you leave behind is another matter altogether.
In principle, ensuring that your loved ones are financially taken care of when you die seems obviously important: ‘I love my family, of course I want them to be looked after.’ But, why is it then that so many parents don’t have life insurance? One answer lies in the way people evaluate risk. We all know that we will die someday, but that day almost never feels like today, or tomorrow, or any time in the near future. It’s like humans are pre-programmed with a blind spot to mortality. On one hand that blind spot is justified – most of us can expect to live long enough that life insurance becomes less important. But, on the other hand, there’s no guarantee – the world can change in an instant, and that’s the reality that the blind spot is trying to protect us from. Many people, then, have a resistance to contemplating their own death – it really is an uncomfortable topic – and see life insurance as an ‘I’ll get to that later’ type of expense. That’s all totally understandable, but let’s weigh up the cost to your family and loved ones, specifically your children, if you were to die without life cover.
If you are a single parent or the breadwinner in your family, the loss of your life could be as financially devastating to your children as it is emotionally. Without your income they may be thrown into a dangerously vulnerable position that threatens their schooling, social development and access to important experiences; in the worst scenarios, even their basic needs for food and shelter might be threatened. The situation is not much better if you and your children’s other parent share financial responsibility. In such a case, your death moves an immense burden onto the other parent’s shoulders. Now they need to find an additional income to help them cover the costs of raising your children, an extreme task to be saddled with while trying to comfort your children in their time of loss. Naturally, this is a horrible prospect for any parent to imagine, but how does life insurance help?
A standard life policy sees a large lump sum of money – an amount agreed when you take out the policy – paid out to your nominated beneficiaries when you die. These beneficiaries could be anyone, but whether you nominate your partner, another family member or your children directly, this money has the potential to protect your young ones. The most common use for life insurance payouts is to write off or drastically reduce the amount owing on a house bond. A home loan is, for most people, the largest debt they have in their lives, and knowing that your life insurance policy would be able to eliminate that debt means your children will always have a roof over their heads. The money could also be put towards your children’s future schooling or invested on their behalf. However, the money is used, your life cover allows you to sleep better at night knowing that, should anything tragic happen to you, your children will be safe.
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