I’m Single, Do I Really Need Life Insurance?
Any stint of watching day-time television will clue you into the fact that life insurance is most often sold to people with families, cue the big-eyed children and seriously sentimental music. The reason for this is that people with young families often have very high financial commitments and the loss of an income stream can spell disaster. But it begs the question that if you don’t have people financially reliant on you why on earth would you need life insurance?
The thought process goes like this….
I’m single, I don’t have kids. While my family would be very sorry to see me go, they don’t need $200,000 to cope with my loss if happened to step under that bus.
True or False? Well as will all things the answer is a bit more complicated than that.
Who would suffer financially if I wasn’t around?
Life insurance (which can also be known as term life or death cover), pays out a lump sum of money in the event that you die. When you die, the executor of your will, collects together all your assets, they pay out your creditors (eg the bank to pay off a home loan or credit card) and then if anything is left they divide it up according to the instructions in your will. Anything that is left over after paying your debts is then divided up according to your will. Unless you have a joint loan or someone has guaranteed a loan for you, your family are not required to make up the difference if your loans are more than your assets, they just won’t get anything (and may have to fork out for your funeral costs).
I’m going to make a big statement here but you have to promise me that you will keep reading to the end of the statement, OK?
So if you don’t have anyone that is financially dependent upon you, chances are you don’t need life insurance, BUT (and here’s the annoying thing) life insurance is a prerequisite to having Total and Permanent Disability Insurance and chances are you NEED that.
Would I have housing security if suffered a catastrophic accident or illness?
Total and Permanent Disability cover (TPD) pays out a lump sum if you are ill or injured and unable to work again. While it varies from person to person, single people will typically need to ensure they have enough cover to secure their living arrangements. If you own a home it might be that you need enough to pay out your mortgage (and other debts) and make some structural adjustments to the house. If you’re renting you may need to cover enough to buy a unit. You probably also want to make an allowance for additional medical costs you might encounter.
It’s tempting to revert back to the student mindset and assume that if something like this happened you’d just move back in with your parents. This might have been a viable option at the age of 21, when you were partying more often than at home. But you might want to think about the additional challenges of having to move back home at the age of 35, knowing that you have to move in permanently because there is no other option. In the event of this kind of serious event you might end up sharing a house with family members but knowing that you have $300-$400,000 in the bank gives you options to make your own choices and can make the world of difference in quality of life and reduces the financial and relationship stress of having to rely on family members for financial support.
Life and TPD cover are usually offered as a bundle, and typically you can’t have more TPD insurance than life insurance (which is why life insurance is relevant for single people).
How would I pay the bills if I was sick and couldn’t go to work?
With the exception of the very wealthy or those close to retirement, chances are your biggest asset is your ability to earn an income. We rely on an income to live our lives, and if an unforeseen incident jeopardizes this money, even for only a short period of time, it can have severe consequences. There are always essential financial commitments which need to be paid, whether it is our mortgage or rent, our electricity bills, our car payments, even our grocery bills, and if your income stops you may find yourself getting into in a debt situation you can’t rectify. Sure you might think you can move in with family or friends but the stress of having a mortgage foreclose or losing the bond on your rental is the last thing you want to be thinking about when you’re trying to recover.
Income protection is a series of monthly payments that kick in if you are ill or injured and unable to work. Most of us could survive a few week, perhaps even a few months of illness by using a combination of sick leave, annual leave and cash reserves. Beyond that most of us would struggle. When your single this is particularly important because you don’t have a partner’s income to fall back on if the worst should happen. Ideally you should have a policy that will keep making monthly payments to you right up to the age of 65 if you need it.
Income protection is probably the most important financial investment a single person can have. Income protection, and an emergency cash fund is the solid foundation of financial independence.
Do I really need to think about it now?
If you’re even thinking you might get insurance at any stage in the future then the best time to get it is now. When you’re younger you are naturally healthier, which will make applying for insurance much easier. You’re also more likely to be get better coverage as you are less likely to have pre-existing conditions that the insurer will exclude from your cover. Finally, when you are younger the cost of your insurance is generally cheaper, with most insurers gradually raising premiums as you age.
Sally thinks about what it would cost
We’ll give the last word to Sally. Sally (aged 35) is a marketing consultant at an events management firm, she single and is working hard to make head way on the mortgage on her apartment. She’s just decided to sort out her insurance. She’s planning to increase the life insurance and TPD cover in her super fund to $300,000 (which would cover her mortgage) and to apply for income protection to age 65 that will pay her up to $6,000 per month if she can’t work due to illness or injury. Sure it costs her a bit under $900 per year from her super fund but it secures her financial position.
She says ‘the way I look at it is, if someone gave me a machine that printed $80,000 a year and over it’s life was expected to print over $3 million, would I insure it? Absolutely I would, you’d be crazy not to. I insure my car and my contents, it just makes sense to insure the most valuable asset I have, my ability to earn an income.’