Critical Insurance Cover

07-Sep-2010

Although insurance is very important in some circumstances, it is an unnecessary expense in others.  What counts as critical insurance cover will vary from household to household, and this article aims to give you some food for thought about which insurance you may need, and which you may be spending money on unnecessarily.

Below are some of the reasons you may or may not need cover, but if you are unsure, always take professional advice from an impartial advisor, because this is the only way you'll find the critical insurance cover at the best rates for your personal circumstances.

Do you have a family?  It's not something any of us like to think about, but if you have a family and anything happened to you, the financial consequences could be devastating for your partner and children, especially if you are the main breadwinner.  A life insurance policy would ensure that your family would receive a lump sum if the worse were to happen, so school or university fees could still be paid, and the mortgage and other essential expenses could be met.  Talk to a life insurance advisor today to find out where life insurance should be considered as critical insurance cover for yourself and your dependents.

If you're not in a position where you are supporting anyone else financially and you are not in debt, there is no need to take out a life insurance policy.  The only reason why life insurance would be a critical insurance cover in this situation is if your family would have trouble dealing with your debts and funeral arrangements.  Your next of kin are responsible for paying off any debts after your death (including your mortgage), and also paying for your funeral, but if you do not have any debts that would be passed on and have savings or funeral insurance that would cover these outgoings, it's likely that you don't need life insurance.

If your mortgage is the only expense that you would be leaving behind should the worst happen, you can take out a specific type of over known as mortgage life insurance, and this would payout enough to cover your remaining payments if you were to die before the home loan is paid off.  Because the potential payout decreases over time, the policy costs for this type of insurance are lower, making this a more affordable type of life cover for those with limited debts.  

If you have significant outgoings each month and no savings, protection insurance may well be a critical insurance cover for you. If you got ill, lost your job or for any other reason could not work for a long period of time, could you support yourself?  How about your family?  If the answer is no, you should consider a type of protection known as ASU (Accident, Sickness or Unemployment) to protect against these possibilities.

However, mortgage protection insurance is not a critical insurance cover if you have limited outgoings each month and you have enough savings to cover you for 3-6 months if you suddenly lost your income.  If you don't have a mortgage or dependents who would suffer financially if you lost your job, or if you have savings to cover you for a reasonable period, there's no need for this type of insurance.  Make sure that you are only paying for cover that you actually need, and if it's not required, put the money into savings or mortgage overpayments instead!