Life and Critical Illness Insurance

 “Do you need insurance?” The answer to such a question is that it depends on your circumstances - current and expected.

Life Insurance

Death is one of the most uncomfortable subjects for us to discuss or even think about - especially our own death. Perhaps, it is because it means facing our own mortality – or some subconscious belief that not talking about it somehow postpones that inevitable day.

The primary purpose of life insurance is to protect those who depend on your income from the financial burden in the event of your premature death, especially at a time when they would be dealing with significant personal and emotional pain.

Life insurance is a key way of safeguarding the livelihood of your dependents after your death.

Critical Illness Insurance

Statistics show that Caribbean people are surviving critical illnesses such as cancer more frequently now than in prior years. Improvements in medicine and medical treatments have resulted in promising prognoses for many illnesses. However, the occurrence of chronic disease and critical illnesses is on the increase. The facts indicate that approximately one out of every two Barbadians will encounter a critical illness during their lifetime.

Maintaining your quality of life after the diagnosis of a critical illness and dealing with financial commitments can cause hardship for you and your family. Critical illness insurance can protect your family's future. Generally critical illness insurance will help to pay off a debt, such as a mortgage, or to help provide funds that can be used for medical treatment in the event that you fall victim to specific illnesses, including stroke, cancer or heart attack.

Here are some of the reasons why you should consider life and/or critical illness insurance:

• Income Replacement: 
  • Life insurance is the most cost effective way to replace your income so that your survivors can maintain the standard of living that they are accustomed to.

• Mortgage Protection:
  • Term life insurance or critical illness insurance can be a means of paying off your mortgage balance.  No one would want for one partner to die, and for the other to be forced to give up the family home because they cannot afford to make the mortgage payments. Insurance allows you to cover the remaining balance on your mortgage to ensure that you family can keep the house, in the event of illness or after your death.

• Debt Repayment:
  • Your debts are not automatically written off when you die, rather, they must be paid from your estate.  You should therefore ensure that a life insurance policy is in place to pay off what you owe, so that the financial burden does not fall on your dependants. 

• The Final Expenses:
  • Final expenses can be very burdensome, especially if there are funeral costs, burial fees, and medical bills to pay.  Life insurance protects your loved ones from having to shoulder these additional burdens and helps them to cope in this time of distress.

If you have decided to purchase life and critical illness insurance, you should know exactly why you are buying it and choose the best type of policy for your needs. You should buy no more than you need, so consider these questions which will help you determine your insurance needs.

Do you want to have insurance coverage to:

• Pay funeral and burial costs?
• Pay the outstanding balance owing on a mortgage and other debts?
• Offset the loss of your income? For how long?
• Contribute to the future education of your children?
• A combination of all or part of the above?

 Lashley Financial can help you to determine the insurance you need to protect yourself and  those you love.

DID YOU KNOW?

It is the right thing to want to prepare for your child’s future – to ensure that they have the best start in life that you can give them.

It is for this reason that parents with new babies are a major target of those who sell life insurance.

But while parents have a great desire to look out for their children’s future, they may not be getting the best advice on how to go about doing it.

Often, the reasons you hear being advanced by those who sell insurance on the life of a child are:

• It will provide money for the child’s education
• In case the child is unable to purchase insurance when they are older (i.e. if they are not insurable), they will already have cover
• The insurance increases by 5, 7 or 10 times when the child reaches 21 for the same premium.

Unfortunately, none of above is a good reason to purchase life insurance on a child.  Remember that the basic need that life insurance satisfies is income replacement.  Since children generally have no income, there is no need for life insurance. 

Let us deal with the “reasons” that may have been given to you:

• Children’s education: The reality is that the average insurance policy will not even come close to paying for a university education.  More importantly, there are much better ways to save for the child’s education – like a growth mutual fund if you have 10 years of more before the child becomes 18; a balanced mutual fund for 5 to 10 years and less than 5 years, a plain old bank account.  All will do much better than purchasing insurance for your child.

 Consider the following example (a real example):

 A parent aged 21 purchases $50,000 in life insurance for her child at age 2.  The monthly premium is $154.58.

At age 21, the child is expected to have less than $50,000 in funds on this policy.

 If she had put this same money in a growth mutual fund for 19 years (expected to earn 10%), the child would have over $100,000.  This does not include the potential tax benefit received from investing in mutual funds.

 Therefore you can achieve the objective of providing for your children’s education without paying the cost of insuring them.

• Uninsurable child:  The vast majority of insurance policies applied for are approved and very few people are uninsurable at age 21.  Regrettably, if your child is uninsurable at this age, it is very likely that they will not need life insurance as they are likely to be very ill with no long term prospects of survival. (This is what makes them uninsurable).  So they are unlikely to need life insurance.

More than this, the money you would have invested for them (instead of buying life insurance) would be much more beneficial at this point anyway.

• Increasing cover at 21:  Why not simply buy the amount of insurance you need (term, of course) at age 21?
  

Consider the following example (continuing from the example above).

When the child reaches age 21, the original policy has funds of $50,000 and the sum assured increases by 10 times to $500,000.  The child continues the policy to age 60 at which time she is projected to have approximately $500,000 in funds and $500,000 in insurance coverage.

Instead, on the child’s 21^st birthday she continued to keep her funds invested ($104,000); purchased term insurance to age 65 for $500,000 for $76.30 per month and invested $78.28 (the difference between the original amount ($154.58) and the new term insurance premium of $76.30) in the same growth mutual fund earning 10% per annum over the long term.

At age 60, your child would have $500,000 in coverage and $5,500,000 in funds.  Yes – over $5 million dollars more; it is not a mistake!!! 

In my opinion, there is no good reason for you to buy insurance on the life of your child.

So what should you do if you have already bought insurance for your child or already have whole life policy rather than term insurance?

The answer is not straightforward without understanding your specific circumstances.  Give us a call on 423-6203 so that we can discuss your specifics and we will suggest a course of action.  No charge for the discussion.

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