When Less Is More - Here’s When You Don't Need A Large Life Cover

When it comes to buying Life Insurance - especially term life cover, we’re often told that our approach should be in large multiples of our annual incomes - usually 10X and sometimes, up to 25X (this is your reminder to subscribe to our newsletter - we will be sharing foolproof ways to calculate your life cover in upcoming issues). While this approach makes sense for those of us who are looking at term insurance at a younger age, there does come a time in one’s life when you don’t need a large life cover.?

This month’s newsletter is focused on the situations where you don’t need a large life cover and more importantly - how this impacts your term life buying decisions.?

You don’t need a large life cover when:

1. Your kids are grown up and earning on their own: The goal behind buying a term life policy is to protect your family and ensure that they’re not left stranded incase of any untoward incident that happens to you, the primary breadwinner. When your kids have completed their education, start earning and breadwinning themselves, the need for a large cover diminishes.
2. You’ve paid off your big loans: Term life policies are also necessary - and mandated - for individuals with large loans. After all, if something happens to you, the burden of paying it off comes to your grieving family who may not be in a position to repay it. But, when you’ve closed your debts, the need for large cover also closes.
3. You’ve accumulated savings and planned out your retirement: Term insurance is called an ‘income replacement’ product. The idea is that if something untoward were to happen to you, the income that your family may have lost because of this event is replaced. So if nothing happens to you (thank heavens!) and you’ve followed through on your retirement and savings plans, there really is no income that needs to be replaced.?

So What Should My Term Life Insurance Policy Tenure Be?

We believe that the ideal tenure for a term life policy should be only up to the age of 65, with an outer limit of 70 years. At 70, most of your life’s plans should have already been set. Your kids - if any - would be grown up, your career would have allowed you to save what is necessary for your retirement, and hopefully, there is no debt left.?

No, You Don’t Need A “Whole Life” Cover:?

There are plenty of insurance products that advertise ‘whole life’ cover, where you get coverage beyond the age of 70 and up to the age of 99. But we believe they aren’t necessary - why pay premiums for a product you don’t need? Your family and your dependents don’t need the protection they used to when you were 30. Unless you’re viewing these products from the perspective of additional inheritance for your family, they serve little to no purpose as income replacement products and are more likely to dry up your finances. And this is at a time when you could be financially vulnerable as a senior citizen!?

Our advice? Make sure you know what you’re buying!?

Take care,

ACKO