Planning For Your Life Insurance

Article published on 6th July 2008

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Before you start looking for a life insurance policy you should first calculate as accurately as possible what your financial worth is to your household. That may sound a bit cold, but just consider this - should you die unexpectedly tomorrow, what effects would the loss of your income have on your family and how long would it take them to recover?

So although we all hope to die after many, many happy years of life, the primary goal of life insurance is to protect against an untimely and unexpected death that cannot be foreseen or prepared for except through the speculation of insurance. Well, I say 'speculation', but in fact you are pretty much guaranteed to get your money back at some point or another when you eventually die. The point is that you are speculating against your untimely death. So the money returned to your household after your death may be of more use to them if you died now than if you died year from now aged 103, when you would hope the various members of your family are well established with their own lives and careers and can survive perfectly well without having to rely on your income.

With that in mind, focus on your policy as insurance against your unexpected death, because it is in such a tragic circumstance as that in which life insurance really comes into its own.

Financial advisors generally suggest that you should look at 5 times your annual salary as a realistic goal for your insurance payout, but it is vital that you do not commit yourself to higher premiums than you can pay. Just don't buy more than you can afford. If your policy gets cancelled because you can't meet the payments, then it has helped nobody and wasted your money and everyone's time.

Finally, never, never, never regard your Life Insurance package as a form of personal investment strategy. It is true that with most policies you can 'cash in' by surrendering your policy, but remember, the policy is there to protect your loved ones, not provide you with a pension or whatever. There are far better ways of investing money for your retirement, whether it be in stocks and bonds, a guaranteed pension plan or even the relatively new phenomenon of 'longevity insurance' (which we will discuss in a future article), all of which represent for more predictable, manageable and more profitable forms of investments for financial security.

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