What Is The Best Time To Buy Insurance

Although it's difficult to think about growing older, it’s an important consideration for anyone with responsibilities and dependents. There is no specific age that determines the need for a life insurance policy; it is essentially based on your personal circumstances.

Types of life insurance
The two main types of life insurance policy are Whole Life and Term Assurance. The former is a policy that is in place for your entire life and will pay out whether you die in 10 years or 50 years’ time. As it offers a guaranteed payout, the premiums are often quite expensive.

Term Assurance is a cheaper option, but it only covers policyholders for a fixed term. If you die after the term you won’t receive a payout, although it is possible to renew the policy for another fixed term.

The idea behind term assurance is to protect your children and family members for as long as they may be financially dependant on you, or to cover any debts, such as a mortgage.
Within term assurance, there are another two types of policy: level and decreasing term. As you may guess, level term pays out a fixed lump sum at any point, whereas with decreasing term, the payout decreases each year.

Who needs it?
There is a common assumption that everyone needs a life insurance policy. However, that’s not strictly true, as it’s really only worthwhile for people that have major financial responsibilities, whether that’s to provide for dependents i.e. children, or pay off debts, such as a mortgage.

A single person without any children or serious commitments may find that paying for life insurance is a waste of money as their death is unlikely to have any serious financial implications for their family members.

However, life insurance rates tend to increase as you get older, so there is an argument to lock in as much as possible as early in possible. In reality, investing the money you would spend on premiums is likely to be a better option.

As you start to gain responsibility and go through the various stages in your life, taking out a policy is a feasible option. In the event that the worst does happen, at least your loved ones will be protected by your life insurance.

What is it used for?
Life insurance usually pays out in a lump sum in the event of death, but there is also the option for the payment to be made in instalments over a set period of time. The payout can be spent on anything the beneficiaries wish to use it for, but the main reason is often to repay a mortgage. However, it’s also possible to use the money to replace your income, support dependents and cover the cost of education.

The amount of cover needed will depend on what you intend the life insurance payout to be used for. Think about the size of your mortgage and other debts, number of dependents and current salary.

When should it be considered?
The right time to purchase a life insurance policy depends on individual circumstances. Although having children or other dependants is the main reason people require a policy, there are other responsibilities that deem it necessary.

For example, if you enter into a joint mortgage with a friend or partner. If you were to pass on, they may not be able to keep up the repayments without your income. It’s recommended that you take out life insurance whenever you buy a house, as should your demise be untimely, your loved ones may not be able to afford to pay the mortgage.

The most common times to purchase a life insurance policy include buying a house, getting married, having children and changing your job. Again, although generalisations can be made, personal circumstances should be taken into consideration.

Married couples without any children may not require a huge life insurance policy, particularly if both parties contribute equally to the income - although there are still debts and funeral costs to consider. If you are the main breadwinner, it’s unlikely that your spouse would be able to cope without your salary.

Couples with young children are the classic case for life insurance, especially in the event that only one party contributes to the household income. The same can be said for single parents and adults that are responsible for caring for elderly parents.

The need for life insurance changes over time, as younger people are less likely to require any cover, but once the responsibilities start growing, the need for protection increases.

However, as you progress into your golden years, you might be able to reduce your life insurance policy again. If your dependents have grown up and become financially independent, you’ve paid off the mortgage and cleared any debts, you won’t need the same level of cover.