While I was going through our own portfolio to set up life insurance in Hong Kong for us as a family, I realized how little it's spoken about and my husband wasn't crystal clear on what it is and why we need it. We have a life insurance back in Ireland to mortgage a home but we've never looked at life insurance here before and now with a small family that we want to expand, it was the perfect time to review our legacy.
So here is my personal experience and share on why, what and how.
Why take life insurance? 3 simple reasons.
- No one knows what may happen.
2. It provides peace of mind.
3. It leaves a legacy for your dependents.
While no amount of money can ever replace the loss of a loved one, leaving something behind eases the financial burdens that may come with funeral costs and debts and loans you may leave behind.
What types are there? LOTS but let's keep it really simple.
Term Life:
Affordable
Lasts 10, 20, 30 years
No returns or interests
ex: I pay for 30 years to be covered for 1Mill in case I die in that time. If I don't die, great and I don't get anything back.
Term Life Return On Premium:
Affordable
Lasts 20, 25, 20 years
What you put in, you get back at the end.
ex: I pay for 25 years to be covered for 1 Mill in case I die in that time. If I don't die, great AND I get every dollar back that I put in.
Whole Life Insurance:
More expensive
You pay for a set number of years anywhere from 3 years to age 80
You are covered until you are 100 years old
You are paid dividends (guaranteed cash value + non guaranteed dividends)
ex: I pay for 20 years to be covered for 1Mill from now until I die. When I die, my daughter will be paid 1Mill plus any dividends earned over the years. I can also withdraw the dividends should I need it, if I fall on hard times during my life.
Critical Illness:
Paying ahead for any future illnesses you may get
Insurers pay you a lump sum upon falling ill
Consider it a form of covering your living expenses for 2 or 3 years
ex: I pay for 20 years to be covered for $200,000 and in that time or after I fall ill, the insurer will pay me a lump sum of $200,000.
Where does this leave us as a family? I am in my early 30s and my husband late 30s. What's most important to us is to have the cover in the event that either one of us passes away in the next 30 years. So we have budgeted to take a term life return on premium for me and a straight up term life for him. Premiums are calculated by age and health. In general, if you're young and healthy and working, this is the perfect time to start a policy in planning for your future.
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