Many of us lead very busy lives. This means it’s entirely understandable that people often just leave things “ticking over” unless there’s a reason to change them. Often, that’s not just perfectly fine, it’s very sensible. Sometimes, however, it’s a mistake. With insurance, especially protection insurance. It can be a huge mistake.
You need the right level of cover for your situation
Think of insurance as cover for life’s rainy days. Now think about how you dress for a rainy day. If you have to go out when it’s absolutely pouring, you’re going to want your best (and longest) waterproofs. If, however, you’re just popping out into a light shower, an umbrella on its own might be absolutely fine.
The same principle applies to insurance. Admittedly, you can’t change your insurance policy as quickly and easily as you can change your clothes. You can, however, definitely change it and you should, indeed, must change it as your needs change. The good news is that your needs are unlikely to change as quickly as the weather.
Major life events are indicators to check your protection cover
Many forms of insurance are subject to annual review. Some forms of insurance, however, can run for two or three decades. This is particularly likely with protection cover, especially life insurance. Just because they can, however, it doesn’t mean that they should. In fact, they almost certainly shouldn’t. A person’s life can change significantly over that length of time and hence, so can the amount of cover they need.
Protection cover should be assessed at an individual level
In simple terms, if you have dependents, you need protection cover. Even if you don’t have dependents, you may benefit from some forms of protection cover such as critical illness cover. If you share responsibility for dependents (e.g. parents) then everyone involved in caring for the dependents should have their own protection cover. This applies regardless of whether they are earning an income. What’s more, everyone involved in caring for the dependents needs the right level of cover for their situation.
It is impossible to overstate the importance of making sure that each carer has the right level of cover. The reason for this is that the level of cover each person needs may surprise you. For example, let’s say a couple has pre-school children. One parent goes out to work. One parent stays at home to look after the children.
The parent who goes out to work may not need cover to replace all of their income. The parent who stays at home to look after the children will need cover which will pay for someone else to take over their childcare responsibilities. In fact, the home-maker may need a higher level of cover than the breadwinner due to the cost of childcare, especially during the pre-school years.
It can be useful to have protection cover for children
For the most part, children are impressively robust. It is, however, a sad fact of life that some of them will be involved in accidents and/or become sick. Some will even die. For those who do recover, the road back to health can be long, arduous and expensive. When children have their own protection cover, the extra funds can go a long way to ease the burden on parents (and other siblings).
You need to think about how you want to receive any payouts
Some forms of cover may offer protection either as a lump sum or as an income, possibly for a set period (or a combination of both). If so, you need to decide what is right for you, or, in the case of life insurance, your heirs. You also need to think about whether or not you want to put any life insurance payout into a trust, especially if children are involved.
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