Does death cover (better known as life insurance) really matter?
As Kerry Packer once said “I’ve been on the other side and let me tell you, son, there’s f—ing nothing there” SMH. There are also no ATMs in heaven, so why bother?
The short answer is: no, it doesn’t really matter. Provided you leave no financial mess behind for the people you care about most, should you pass away. Unfortunately, for most people this is unlikely the case.
Life insurance is not designed to protect you. It is designed to mitigate the financial impact your death will have on the people you love and care for.
In most cases, the impact is significant (see my article on forward thinking for example). Imagine you are the main bread winner with young children. You have a mortgage but insufficient assets to provide a safety net upon your permanent departure.
How would your family be able to continue without your income?
On a milder case, you may have sufficient assets or intergenerational wealth that you can rely on as a safety net. However, is this an optimal strategy? Assets may have to be liquidated at a distressed value upon an unexpected death.
A common misconception is that Life insurance only applies to the main bread winner.
It is particularly important in families with children. Usually one partner spends a considerable amount of time looking after the family so the other can focus on being the main bread winner. What happens when you are no longer around? Who will do the school runs? Life insurance can reduce some financial pressure so the remaining parent can spend more time with the kids in such an emotionally challenging environment.
Let’s not sell yourself short and think about the positive impact you have on the people you love and care for. If you are not around, is there sufficient cash flow to maintain these positive impacts?
Other things to consider about life insurance:
- Having it inside superannuation or outside of superannuation
- Long-term insurance cost structure
- What is a suitable amount of cover for you and your family
- Is it better to get it earlier or later in life
- Any potential tax considerations
- Which insurance provider to use
Although we all plan to live long fulfilling lives, there are many uncertainties in life. Take a look at the leading causes of death and insurance payout amounts in Australia.
Think about this common quote: “There are only two things that are inevitable in life, death and taxes”. Make an informed decision for your family, whether it is having no life insurance, some cover or a large amount of life insurance. Consider your loved ones.