What is Life Insurance?

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Life Insurance is protection for you and your family. You can buy a policy from a life insurance company which will pay a predetermined sum on your death within a specified time. It is designed to provide that additional financial support to those who need it after your death. It can also be combined with a savings or retirement plan which will pay a lump sum if you die within a specified period or if you survive to the end.

Life insurance offers valuable financial protection in the event of your early death to family members dependent on your earnings. But it may also be a means of saving. This combination of protection and saving makes life insurance unlike any other financial product. Some policies protect, some help you to save and some do both.

With a life insurance policy in place, you can:

  • Provide security for your family.
  • Protect your home loan.
  • Take care of your estate planning needs.
  • Look at other retirement savings/income vehicles.

A life insurance policy is a contract between the policy holder and a life insurance company where the latter promises to pay the legal heirs or a designated beneficiary a sum of money upon the death of the person whose life is insured.

The life insured need not be the policyholder but can be a third party provided that the policyholder has a lawful “insurable interest” in the life to be insured at the time of commencement of the policy.

This means that for a number of years, you have to pay an annual premium to your life insurance company. When you do a life policy, you have to be sure that you would be able to meet your annual obligations on time and in full. In normal circumstances, you would not be able to obtain the full value of your insurance premium paid over the years if you surrender your policy before its maturity.

Paying for your life insurance policy usually takes two basic forms:

  • Single Premium – a lump sum is paid at the beginning of the policy. No other payments are made for the whole duration of the policy. Some policies may allow you to “top-up” the amount at particular intervals during the life cover.
  • Regular Premium – this can be annual or monthly. A monthly payment would normally incur added charges to the policyholder as a result of added administrative procedures for the insurance company.

Remember that if you decide to change any aspect of your policy at any time during the duration of the life cover, the insurance company may reserve the right to charge you a small fee to cover administrative expenses.

If someone depends on you financially, you probably need life insurance. Here are some examples of specific life stages or life events that might trigger the need for additional life insurance.


Most single people don’t have a pressing need for life insurance because no one depends on them financially. But there are exceptions. If you’re providing financial support for aging parents or siblings, or if you’re carrying significant debt you wouldn’t want passed on to family members, you should consider life insurance.
A Homeowner
For most people, your home will be your most valuable financial asset. Life insurance can be used to repay the outstanding home loan, sparing your family the need to move to a cheaper property.
Married or Getting Married
Many families depend on two incomes to make ends meet. If you died suddenly, would your spouse have enough money to cover your funeral costs, credit card balances, outstanding loans and daily living expenses?
A Parent or About to Become One

Raising a child is one of the most rewarding things a person can do in life. But it’s also one of the most expensive. If you had died yesterday, would your spouse have the financial security to provide your children with the opportunities you always dreamed they’d have? From diapers to diplomas, would there be enough income to pay for daycare, a college education and everything in between? Even parents who don’t work outside the home need life insurance because they provide services that would be expensive to replace, such as childcare, transportation and household chores. And what about single parents? They need life insurance more than anyone because their children rely on them for everything.

Changing Jobs
If you’ve recently been promoted or changed jobs, it’s a good time to re- evaluate your life insurance coverage. Why? You may not realize it, but when your income rises, your spending tends to rise, too. Updating your life insurance coverage can help ensure that your family would be able to maintain its new and improved lifestyle if something were to happen to you.
Retired or Planning for Retirement

If your children have left home and your home loan is paid off you might feel your need for life insurance has passed. But if you died today, your spouse could outlive you by 10, 20 or 30 years. Would your spouse have to make drastic lifestyle adjustments to make ends meet? Adequate life insurance coverage can help widows and widowers avoid financial struggles in retirement.

If there is someone who would suffer economic hardship if you died, then the answer is yes… you need life insurance!  Families with young children have a clear need for life insurance. If both spouses work, the loss of one income will cause the family immediate economic hardship and make it harder for them to realize future goals, such as paying for the children’s’ education. But even if one spouse works “inside the home” and doesn’t bring in a formal income, his or her death will require the surviving spouse to hire child care, housekeepers and other professionals to help run the household – and that can be a significant new expense.

If you are married without children or single, then you may need life insurance to protect your partner or surviving family members against the costs associated with your death.  Funeral expenses, legal fees and outstanding debts are costs that all of us must consider.  And, they can add up quickly. Unless you already have sufficient financial resources, your survivors will probably need life insurance to cover these expenses.

Under any circumstances, the loss of a loved one is a traumatic experience. But, if your family is also left without sufficient money to meet basic living needs or prepare for future goals, they will have to cope with a financial crisis at the same time. Depending upon their current financial resources and ability to “get back on their feet” emotionally and financially, your family might be forced to move to a less desirable home, abandon education and career plans, reorder family priorities (such as the amount of time spent with the children) and, in general, cut back on the quality of life you have worked hard to achieve.

Your family might even be forced to go into debt simply to pay the expenses, like funeral costs and legal fees that result from your death. A moment’s reflection will tell you that the lack of sufficient life insurance coverage when a loved one dies can have devastating consequences for a family… consequences that can last for years.