When do you need life insurance?
You only need to buy life insurance if you have people who depend on you financially. That’s why life insurance is for, to give them a cash lump sum so that they can maintain their lifestyle in your absence.
Typical examples of financial dependents are:
- Your non-working spouse
- Your non-adult children
- Your elderly parents who depend on the allowance you give them
- Your younger siblings who depend on you to pay for their education
One way to look at it is to consider your various life stages and identify who might rely on you for financial support.
- Early career and single
You are early in your career, single, and your parents are still working. Your parents do not get an allowance from you. In fact, you are looking to them to help you with your first down payment for an apartment.
At this stage, life insurance might not be necessary since you have no financial dependents. Instead, focus on maximising your investments. Avoid investment-linked life policies as you don't require the life insurance part. Consider putting your extra savings into direct investments like unit trusts or robo-advisers for better returns.
- Just married, both you and your spouse are working, and getting your first property
In this scenario, even if your spouse is financially independent, it might be challenging for her/him to manage the housing loan alone. So, you’ll need life insurance to provide your spouse with a lump sum payment in the event of your death to pay off the loan.
Banks often include Mortgage Reducing Term Assurance (MRTA) in their loan packages, covering the housing loan in case of death. If you have an MRTA, you may not need additional life insurance unless your spouse requires extra cash support.
- Just starting a family and your spouse is taking time off work to raise young children
This life stage is the most financially challenging as you are the sole breadwinner in your family. Should anything happen to you, your spouse would have to return to the workforce immediately while raising your children.
This is when life insurance really counts. Get the highest coverage possible (e.g. RM1 million) over a longer term (e.g. 25-30 years). This ensures your spouse and children will have a solid financial safety net to cover expenses, including future education costs, if anything were to happen to you.
- You have teenage children and preparing for their higher education
You will need life insurance as your teenagers will need financial support for their higher education if you are suddenly no longer around. But the term of the life insurance should tally with the age you expect your teenage children to achieve financial independence. For example, if your youngest is a 15-year-old and you expect her to be working and independent by the time she’s 25, you need only buy a 10-year term life policy.
Hopefully, you have already put aside some money and invested it for your children’s education. Ideally it’s not in expensive investment-linked insurance policies but in direct investments that should now be coming to fruition.
- Your children are now working adults, but your parents are ageing
Your children are now adults and are financially independent. But your parents are ageing and depend on you for financial support. Your spouse might also be thinking of retiring from work.
So long as there is someone depending on you financially, you will need life insurance so that they have a lump sum to support themselves should you unexpectedly pass away. Make sure your life insurance cover is for an amount that your dependents can live on for the rest of their lives.
- Your silver/golden years
You and your spouse are now retired, and though you have some savings, you still depend on the financial support of one or more of your adult children for a worry-free retirement.
Advise your adult children who are financially supporting you to get life insurance. If anything happens to them, you and your spouse will have a cash lump sum to provide for you in your remaining years. Yes, the roles between you and your adult children have reversed, but the principle of life insurance remains the same.
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