Saving for a rainy day is a key consideration in every stage of your life. It is equally important to also think about how you protect your assets for the benefit of your loved ones along life’s journey. A holistic life cycle planning approach can help you integrate insurance into an overall wealth management strategy.
Life insurance solutions address different needs depending on where you are in life. As your income and personal assets increase with career success and growing earning power, the role of life insurance coverage can change.
Creating an insurance strategy for your current and future life stages, as part of your overall financial plan, helps you provide peace of mind.
Wealth protection
When you are just starting out – getting married, moving in with your loved one or planning for a family – you are in the “wealth protection” stage of life. While these may also be wealth accumulation years, insurance can be an integral part of protecting what you’re building.
Protecting your family
Your family requires coverage that can expand with your financial demands. You may want to build wealth for your children. Also, consider costs such as mortgage payments and savings for education, to determine what your spouse or children’s guardian would need in order to cover necessary expenses without you. Should anything happen to you, life insurance can help ensure they’re able to continue the life you want for them.
It’s important to consider the beneficiary of the policy. Many choose their spouse but this could be any adult beneficiary for whom you feel you have a duty of care.
If you’re single and responsible for other family members, such as ageing parents or siblings, your financial plans should provide for their needs as well. Life insurance can help provide the coverage you need, so those who rely on you will be taken care of.
Protecting your lifestyle
If you and your spouse/partner have committed to sharing everything, including the financial obligations necessary to secure your desired lifestyle, life insurance is key to that commitment. It helps to ensure that your spouse/partner is taken care of and the wealth you’ve built together is protected.
Evaluate your finances
Life insurance serves you best when the benefit amount is sufficient to help protect your assets. Understanding your finances is an essential step in the process of creating a comprehensive insurance strategy.
Wealth protection begins with understanding where your income is going. Monthly bills, credit card payments and other expenses are a fact of life. But careful planning today can help ensure that your assets will – and any debts will not – be passed on to your loved ones.
Add up your debts
Here, you will need to think of how manageable it will be for your loved ones to repay or service any existing debts without you. The following are the most common categories of debt: home loans, car loans, credit card balance and business debts. Combine these and any other debts you may have to determine your total.
Calculate the cost of your lifestyle
Take the time to review your entire household budget and assess how your loved ones will continue to afford these without your income. These include the common recurring expenses listed here: groceries; fuel, car servicing, insurance and licence fees; household utilities (TV, phone, water and electricity, etc); childcare and school fees; and prescriptions, medical expenses.
Other costs to plan for
Not everything in life happens on a schedule. There are singular moments and unforeseen expenses that require careful planning in order to be prepared. Add up the common costs, some of which include medical bills, inheritance taxes, wedding ceremonies and children’s education, as well as any others that may pertain to you and your family.
There are various types of life insurance products. Some are focused on protecting your investment savings, whereby the insurer would pay out a minimum or guaranteed sum to designated beneficiaries linked to the amount invested in case you pass away before the investment matures.
Other types of products offer a benefit linked to a fixed sum assured or a sum assured that reduces gradually over the term of the policy, where the insurer would pay out the benefit upon death and/or disability or illness depending on the policy cover.
The insurance cover you choose depends on what you are aiming to protect. One important tip: the earlier you start to plan to protect your loved ones and for the passing on of your assets, the more flexible your options will be.
A financial planning adviser can help you understand how life insurance strategies can help fulfil your lifetime and legacy goals and guide you along the journey.
Muriel Rutland, CEO, HSBC Life Assurance (Malta) Ltd