Let me begin by asking you a series of short but important questions. Your answers will probably have significant consequences for your loved ones. If you are married, I’d suggest you answer these questions together.
How would your family cope financially if you were no longer there?
What would happen to the family’s financial position?
What would be the impact on the lifestyle to which they are accustomed?
Your children’s ability to go to the schools that you had in mind for them?
What would happen in the event that your income was no longer there because you had passed away?
Did you answer these questions comfortably or has it got you thinking that some action needs to be taken?
Many people don’t like thinking about insurance as it invokes thinking about negative things that could happen to you, such as illness or injury and of course the inevitable, death.
However as Christians, we of all people are conscious of our inevitable destination and the reality of life. Along the journey of life we encounter all sorts of surprises, both pleasant and unpleasant. Appropriate planning and risk management can substantially minimize the impact of the curve balls that life can throw at us.
The objective of insurance is not to make you rich in the event of an unforeseen circumstance but it is to prevent you from becoming poor and to avoid unnecessary suffering for you and your family.
THE BIBLICAL BASIS FOR INSURANCE
Does the Bible talk about insurance? Not exactly, but it gives us a lot of wisdom to make sensible financial decisions. Consider this one:
“A sensible man watches for problems ahead and prepares to meet them. The simpleton never looks, and suffers the consequences.”
In other words whilst we can’t possibly anticipate all the things that might happen to us, we can prepare ourselves in such a way based on the common occurrences that we know people face in life and make adequate contingencies.
As I said earlier the goal of insurance is not to make us rich, but is to prevent our families from becoming poor. Insurance is used to provide for our families and us in the event of unfortunate circumstances.
Typically insurance is designed to meet living expenses and retire debt, in the event that the income of one or both spouses is no longer available due to death, disablement or illness.
Life insurance provides a lump sum payment in the event of your death. Historically there have been two main types, ‘Whole of Life’ Insurance and ‘Term Life’ Cover. The focus of this module is on ‘term life cover. Most insurance companies have phased out ‘whole of life’ cover.
How much Life Insurance is required?
Clearly this will differ from person based on your age, marital status, number of kids you have, and your existing assets.
At the end of this module you will find a life insurance worksheet that is designed to help you determine this. The typical variables involved are:
➢ Size of the household debt – most people wish to leave their spouse debt free particularly in the event that it is the main breadwinner that passes away.
➢ Annual income required to provide support to surviving family members, particularly young children. The general rule of thumb is to provide enough capital to fund living expenses until the youngest child reaches 18 years of age.
➢ Funeral expenses – a small provision should be made to cover the cost of a funeral.
➢ Child raising support – consider the implications of additional assistance that would be required in the event of the remaining spouse becoming a single parent and needing help to raise the children.
What about a Stay at Home Mum or Dad?
A common question is ‘should we insurance a stay-at-home Mum or Dad?’ The simple answer is almost always “Yes”. Whilst a stay-at-home parent may not bring an income into the house, their role brings enormous economic value.
If the Mother or Father passed away, generally the surviving parent would require considerable help with:
➢ Domestic Help
➢ Schooling & related activities
Consider your own circumstances for a moment and endeavour to answer these questions:
• What would happen to your family if your income disappeared (or your spouse)?
• What resources do we already have?
• What would be the ongoing expenses after my death and for how long?
To learn more about insurance, check out our flagship course “Wealth with Purpose” at: http://wealthwithpurpose.com/our-courses/personal-courses/financial-freedom-course/