If your partner died today would you struggle financially? Would you be able to make mortgage payments, pay the bills and school fees easily? I would and it’s not because I’ve got a huge stash of cash in the bank.
If you are a parent and you haven’t done this, I suggest you stop doing whatever you’re doing right now and sort it out!
I come from a country where most people don’t plan for their death at all. When a Malawian dies their family often expects everyone to pitch in for the funeral. There is often no financial plan for the children left behind and some well-wishing relative will normally take the children in.
The death rate of young, working people in Malawi is high so this is a frequent occurrence.
Now, because the cost of insurance is high and unaffordable for most, this is acceptable. I love coming from a society that supports its own.
If you live in a developed country, however, I think it’s completely unacceptable. Whether you own something or nothing, are an immigrant or a native you should get life insurance especially if you have kids.
WHAT IS LIFE INSURANCE?
In exchange for monthly payments called insurance premiums a life insurance contract pays out a lump sum if the holder of the insurance dies. This is called pure life insurance.
If you want to be covered if you get critically ill as well, you can get life insurance with critical illness cover. The specific illnesses that are covered are listed in the insurance contract.
Paying premiums can feel like a waste of money but if you think about it as a payment for peace of mind, it makes paying feel like less of a burden.
The insurance can be under a single name or joint names. If it is in joint names the cover pays out when either one of the named parties dies or falls critically ill (if critical illness is included).
WHAT IS MORTGAGE INSURANCE?
In exchange for monthly payments (mortgage insurance premiums) a mortgage insurance contract pays out a lump sum if the holder of the insurance dies.
The sum paid out is designed to track the amount outstanding on your mortgage. This means the amount you would get on a payout falls from month to month as the mortgage outstanding falls.
You can also add critical illness cover to a mortgage insurance contract.
WHY WOULD YOU GET INSURANCE? WHY DOES IT MATTER?
You buy insurance to make sure your loved ones don’t struggle financially if the worst should happen – that is, if you died. It’s a back up plan. Plan B.
So, if for example your partner dies, you would contact the insurance company, present the death certificate and they would pay you whatever the insurance contracts states they should pay.
Although a mortgage insurance contract is designed to track your mortgage, when the money is paid out you are free to use it for whatever you want. You don’t have to pay off the mortgage.
If you made overpayments on your mortgage or if the interest rate on the mortgage insurance contract is higher than the interest rate you were actually paying (this is usually the case) you will have some money left over after paying off the mortgage.
Claiming for a death can be easier than claiming for an illness because it’s simpler to prove.
Sometimes when a claim is put in for a critical illness insurance companies go all out trying to prove you hid something when you signed the contract.
The good news is that it’s a lot harder for companies in Europe to do that nowadays. The courts look more favourably upon the contract holder especially if any omission the insurance company claims was made is completely unrelated to the illness at hand.
WHAT IF YOU DON’T OWN PROPERTY OR ANYTHING ELSE?
Get life insurance anyway to cover funeral expenses and to give the surviving partner time to grieve without worrying about money.
MY LOVER IS GOING TO KILL ME TO GET THE INSURANCE PAYOUT!
I’ve heard some people argue that getting life insurance isn’t a good decision because it would incentivise their partner to kill them. Firstly, if you think this, get a new partner.
That said, to avoid any sort of incentive get a level of cover that’s worth less than your partner’s lifetime earnings. If your partner’s earnings over the life you’ll have together will exceed the insurance contract’s payout then this won’t be a risk.
Don’t forget that there’s a financial burden when a death occurs even if the partner that dies wasn’t earning money but worked in the home. In the case where the homemaker dies the earner has to now invest in costly childcare and home cleaning services.
WHAT DOES INSURANCE COST AND WHERE CAN YOU GET IT?
I don’t recommend getting life insurance through price comparison websites. Ideally, get the advice of an independent financial adviser so that they can guide you towards a provider that will suit your needs best.
Try to get life insurance from a well-known company or bank. If you have never heard of the company check that they are regulated by the Financial Conduct Authority in the UK or whoever your local regulator is you are else where.
If you’re 20 years old, £200,000 of pure life cover for 25 years costs as little as £8/month. This increases to about £10 per month if you’re 30.
Our key interest was covering our children’s private education. The expected cost is £24,000 a year and we estimated to have such costs for the next 21 years so we got a level £504,000 of insurance cover for 21 years with critical illness included for about £87.10/month. This sounds like a lot but without the critical illness cover it was under £40/month.
Mortgage insurance cover costs us £37.10/month. It doesn’t include critical illness.
Oh, yeah, and while you’re at it please get a will in place too.
What are your thoughts on life insurance? A great way to get peace of mind or a waste of good earned cash?
Last Sunday as I wrote my plans for the week ahead I wondered how many people do this.
I don’t do it every Sunday and when I don’t, my week is not productive at all, I feel as though I am wondering about aimlessly productivity-wise.
Conversely, when I plan I’m so much more focused that I can just let emails pile up as I try to meet personal deadlines before close of business on Friday. I used to plan work during the weekend but I don’t tend to anymore.
So, I sat down and thought about why I like planning on Sundays.
As with most people, my productive/working week starts on Monday. If I make plans on Sunday it means that I am ready to go by the time Monday starts.
For me, it doesn’t work to do this planning on any other day because it makes Mondays feel like they’ve started on the wrong path.
Reviewing The Week
The planning process doesn’t take much time, perhaps 20 minutes, but it also allows me to review what didn’t work or happen the week before.
Most people don’t finish everything they tasked themselves to do because, by nature, we all think things take less time than they actually do.
It’s Saturday morning as I write this and when I woke up at 4 a.m. I planned to write, post and schedule emails for three blogs. I’m only on my second blog and the third will not happen. This is what happens, it’s life.
It’s okay though, because it’s Saturday, and I don’t work on Saturdays but my body clock forgot that so here we are, essentially in “bonus time”, doing some extra work.
Creating Focus & Clarity
Unlike New Years’ Resolutions weekly reviews tend to be more specific and generally much more achievable.
Having a focus for the week gives each day a sense of direction it doesn’t have when you just wake up and start making things up as you go along.
Taking Time To Think
Normally, when the week starts we go into autopilot and don’t pause to think even when we know we need to. Sundays are a good time to have this very necessary pause so that we don’t go into overdrive doing things week-in week-out that are not working.
Sundays are an opportunity to change tack, to refocus, to energize.
My big question to you is: do you sit down and plan your week? How do you plan? How could you plan better?
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Ms. Katsonga on Wealth
Heather Katsonga-Woodward: On Business, Life & Everything In-Between