COVID-19 has led us to live the “new normal”. This includes economics, whether global or personal. Since the pandemic, the way people shop and buy has also changed. We’re more conscious of spending our money well and prioritizing needs over wants. Life insurance is not exempted from this change.
It’s only a few weeks until 2021. And as we move to a new year in this new normal, should life insurance take a part in your annual budget? We’ll help you decide.
Who needs life insurance?
The main benefit of a life insurance policy is the death claim. If you die while your policy is active, your dependents or beneficiaries can claim this large sum. This makes life insurance extremely attractive and helpful for breadwinners whose family depends on their income. The death claim will make it easier for your family to financially cope with your loss.
If you’re single and independent, don’t dismiss life insurance just yet. The policy can also pay for your existing loans, even after you die! It can also offer assistance on funeral plans. This is so whoever claims you can make funeral arrangements without much financial trouble.
Short answer to the question -- everyone. Whether or not you have dependents shouldn’t decide if you should buy life insurance. Instead, you should consider its benefits and how they might help separately. A lot of plans and premiums can vary depending on your priority. For example, one plan can have a larger death benefit, and another can have cheaper premiums.
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Should the pandemic affect your decision?
We have established the need for life insurance. But on this day at a time, is it really a must? Aren’t there more important expenses, like bills, groceries, rent, debt payments? That’s true. Life insurance shouldn’t go before the expenses necessary for survival! Definitely not. But, if you do find extra to spare in your budget, is life insurance worthy of that spot?
READ: How To Survive The Lockdown On A Small Budget
The right motivation: investment over panic
In the United States, the number of life insurance applications have increased by 1.5% in the first half of 2020 compared to the previous year. This is similar to how climate change increases the risks of traveling or purchasing property. So, people are more inclined to buy the necessary insurance. In this case, with the current pandemic, the risk of getting infected and dying from COVID-19 is higher. This pushes more people to buy both health and life insurance. Luckily, we haven’t been in the new normal for too long to drive the costs of premiums up.
Naturally, you would want to be protected from the financial blows of the pandemic, direct or indirect. However, this shouldn’t be the sole reason why you would purchase a policy. If it were, then you’d just settle for either the most expensive plan, thinking it should be the best, or the cheapest plan, just to say you have insurance. Look to other personal goals you might want to attain even after you pass. It may simply be to get over formal death matters or it may be as expensive as your children’s college fund. These are better motivations for investing in life insurance After all, there’s still life beyond the pandemic, right?
Remember that insurance is an investment. And it’s never wise to panic buy investments, especially those that take time to pay and claim. Instead, you should carefully weigh out the benefits and costs of different policies.
Payout takes time
Say you do buy insurance only because of the pandemic and you get infected and die (knock on wood). How much can you claim from the insurer?
READ: When Is The Best Time To Buy Life Insurance?
Permanent Life Insurance
Some insurers have a waiting period of one to two years. This is from the time you purchased the policy until death. They have this restriction to protect their own finances. Imagine a client passing away a month after purchasing the policy. That client wouldn’t have paid any premiums yet, but the company should pay out thousands of pesos? Insurance companies are at a definite loss! This kind of life insurance is already more expensive. But, bypassing this restriction might mean even higher upfront costs and monthly premiums.
The good thing with permanent or comprehensive life insurance is the more extensive benefits offered. There are savings and investment options, in addition to the usual death benefits! Application is also more convenient as it’s one time and won’t be affected by age or new diseases.
Term Life Insurance. If you’re buying only because you’re scared of the financial repercussions of a pandemic death, then this is your pick. The payout is instant, and the premiums and benefits last until the term ends. It’s also cheaper than permanent life insurance. You can decide this term to be a year or two, just until a vaccine is made and the pandemic is over! But then, again, we don’t know when that will happen.
And if you need to purchase other insurance after the term, you would need to renew or update your application. The approval will be affected by new health conditions if any. While it may look simple, the re-application for life insurance becomes harder as you age. What you can do is convert your term policy to a permanent one if you decide to expand your benefits even after the pandemic.
Moving from one year to another does not change the fact that death is inevitable. The pandemic just made this more obvious! You can prepare for the financial consequences of death while you’re still around. This way, your family and other financial obligations will be well taken care of. To get the best possible deal, it’s advisable to shop for life insurance policies or have an unbiased financial advisor help you.
READ: What You Need To Know About Life Insurance In The Philippines