Questions, questions ... will they ever end? Which car should I buy? Which credit card is best? Where should we go on holiday? Can we afford that school for our children? Where do I want to retire? Every day we're required to find the answers to a whole bunch of questions. Some of them are small: "which way is best to avoid the traffic at this time?" Sometimes we have to answer big questions, about things that will affect our lives in meaningful ways for a long time.
Let me add another question to your list of things to ponder: have you asked all the right questions? That's a difficult one to answer without a little help, so let me give you a push in the right direction. Have you got yourself covered in case the worst happens? In my job as an independent financial adviser, I have to ask questions of people every day, and some common themes emerge from their responses. One of them is that there are a multitude of people out there who do not have any kind of life insurance in place, and many of them really should have. Here's another question: why is this? You insure your car, right? Surely you're worth more than that? My colleagues and I quickly came to the conclusion that most people simply don't know enough about life insurance, and what its benefits are. This seems fair, as no one is born with this kind of knowledge. Yet there are plenty of purported financial professionals out there who should be sweeping the land and spreading the good word, like an army of financial educators doing battle with ignorance and sowing wisdom. In any solid financial planning process the need to protect your assets should be one of the first areas to consider. So why am I meeting so many people in need of life insurance? I believe the amount of actual, solid financial advice out there may have something to do with this. I have also met a few people who have been sold life insurance without any real need for it.
People don't normally talk about death with their partners. Yet can you afford not to discuss it? What type of lifestyle do you want to leave for your surviving partner? Would you be happy for them to have to pull together the threads of your estate and painstakingly work through them to find the bills that they are left with, or would you rather they are provided for in a way that is controllable and planned? If you believe that life insurance is not worth the cost, what are you prepared to give up? You may be happy to take on that risk, but is the rest of your family? In this case, you're giving up their peace of mind.
How then does a proper financial adviser help establish the need for life insurance? Well, we do it with questions. Specifically, we use a number of "what if?" questions about worst-case scenarios that get you to think about your situation. From the answers, we can help you outline what your requirement is for life cover in the event of death or major illness. There is no better way of going through this process than sitting down and spending time talking it through with your financial adviser, as a holistic approach needs to be taken. I will, however, give you a few questions now to help you decide whether you need to take action.
Do you have children?
If "yes", I would suggest that life insurance is a necessity for you. Children change your financial position in drastic ways, and not just on what you spend. Your responsibility to your children will continue, even after you are no longer here. We all hope to live a long, healthy and happy life, but what happens to your partner and your children if you die tomorrow? Tough question, but do you know what your answer is? Sit down with your partner and your financial adviser, and go through these questions. Decide where the surviving partner wishes to live, and what kind of schooling you want for your children. Does this include university? Will your partner be working full time? Will you need to budget for child care? A good adviser will help you to put numbers against this situation, to quantify your need. A really good adviser will help you decide the balance between requiring a lump-sum payout, or ongoing income, in the event of your death, and choose a product that matches this. Put some thought into what the costs would be for your surviving partner. Some of these will be one-off expenses: for example, where do you wish to be buried, and what will it cost to repatriate your body?.
Whether you are a single- or dual-income family with children, it is critical that you go through the same questioning process. In the event of a family death, the surviving partner needs to decide whether they wish to work full time, straightaway, or spend more time at home with the children for a few years while working through the traumatic change. Childcare costs may therefore be a major part of your needs. You may choose to insure the life of your non-working partner as well as your own (as the main earner) for this very reason, to give you the option to choose your work schedule.
Do you have a mortgage?
If so, you may want to consider life insurance specifically for your mortgage. Or you could roll up the mortgage liability value into an overall life insurance policy. What will happen if you die before the mortgage is paid off? Do you wish to leave the remainder of the debt to your family to pay? For a mortgage on an investment property, with positive equity, perhaps it is less important to your partner to have cover, unless they wish to continue the income generated from the property.
Are you single, with no mortgage or major assets? The immediate need for life insurance is not apparent for you, and it may be reasonable not to have any. However, you may wish to take out a basic level of insurance, to provide you with cover against illness or disability. It is easier and cheaper to get life insurance when you are young and healthy, and it gets more expensive as you get older. Now take a moment to think about what happens if you don't have any kind of life cover in place. What is the cold reality of the situation, and have you and your partner discussed this? If you have existing levels of life cover from a previous insurance policy, this is really good news. Check with your policy provider that you are covered internationally, and not only in the country where you originally signed the paperwork. Is this level of cover enough? Your situation changes as you move through life, so it's worth reviewing it every few years.
What happens if you don't die?
This sounds more positive, doesn't it? Well, actually, no. The unfortunate reality is that you and I are far more likely to be seriously injured or incapacitated through illness than we are to die young. What happens in this scenario can sometimes be more difficult for the family, from a purely financial perspective, as you may need to fund your income for a number of years while you are unable to work. What happens to your family if you need long-term care? It is possible to choose life insurance products that also cater to these needs, and this should not be overlooked as a very real requirement.
I hope you're beginning to see that life insurance is a necessity for some, rather than a luxury. Get in touch with a professional independent financial adviser. After all, why would you not insure your greatest asset? That's you, by the way. Stuart Birch is a financial consultant with Acuma Wealth Management in Dubai. He can be reached at sbirch@acuma.ae
