What will happen to your family when you die? Have they been provided for? These are but some of the questions any family head asks themselves on a regular basis. In this week’s segment of Family Finance we’ll look into Life Insurance, do you really need it to secure your family’s future?

It is important to begin by noting that insurance is necessary in spite of the unscrupulous way many insurance companies conduct their business. Insurance indeed protects people from unexpected events. Not only does it ease the transition of expected deaths, but it can also provide monetary compensation for those families where the primary wage earner dies prematurely. Many young adults dismiss the need for life insurance; however, being suitably covered is extremely important.

Those ends of life expenses can be bloody difficult to manage. So why should you take a life insurance cover?

• To ensure that your immediate family has some sense of financial support in case of untimely and early demise

• To finance your children’s education

• To have a savings plan for the future so that you have a constant source of income after retirement.

• To ensure that you have extra income when your earnings are reduced due to serious illness or accident.

Figuring out how much life insurance to purchase is a complex decision, though a general rule of thumb is 6 to 8 times your annual salary.

Young adults should buy coverage while they are still young and healthy because there premiums will be lower. Many middle age and older Kenyans may find it hard to afford the premium since theirs are much higher, though still, insurance is a necessity for everyone, regardless of age.

What should you consider when taking a life insurance cover?

The type, if any, of life insurance that you need depends on the individual circumstance for each person. Before making that fundamental decision to take a particular policy, it is important you understand what exactly it covers, and that you should also seek advice to ensure that you and your family are adequately covered.

The first thing that you need to decide on is the type of policy you want to take out. There are two main categories – Permanent life insurance and Term life insurance

• A permanent life insurance policy runs from the time you take it until the time of your death. Examples of such policies include The Optima Whole of Life Policy from Cannon Assurance Limited and Fanaka Gold from Jubilee Holdings. The premiums remain the same all through the life of the policy, and the premium amount is based on many factors which include the amount the policy is for, age when taken out, the type of work you do and any health conditions you may have.

• A Term life insurance policy is in effect for a set period of time. Most insurance companies offer 5, 10, 20 and 30 year terms, depending on your needs. An example of such a policy include: Lifespan Endowment Policy from Cannon Assurance. This type of policy is particularly useful if you take it to cover a large debt as you can cover a specific period of time. Most term life insurance policies are renewable, so if you feel that still you need some insurance cover, you can renew the policy, though likely at a higher premium.

• There’s also the option of combination of both types of insurance, though if you have no dependants, a term insurance policy may be sufficient enough.

Once you have settled on a particular policy or policies that suit your situation, you need to decide on how much you need to be covered for. This is where the advice of a financial planner or advisor comes in. they can assist you to determine exactly how much money your family would require to live with, without any financial difficulties in the event of your death.

Things that you need to consider are the amount of debt you have, your children’s education those basic necessities and the sort of impact the loss of your regular income would mean to your family. Once all the above have been considered, you need to decide on an amount that would cover both the debt and future expenses your family would incur after your death. Also ensure that if you take a policy, it is with an established, reputable insurance company. You do not want to pay out thousands of Shillings in premiums only to have the insurance company go bankrupt.

Again, before taking out any policy, make sure you understand what the policy covers, and that you meet all the guidelines and requirements. Never lie on the application form. If you don’t meet the guidelines, or have provided false information, the insurance company will not have to pay the policy to your beneficiary.

While mortality is an unpleasant subject, anyone that is concerned about those they may leave behind awe it to themselves and their families to invest in a good insurance plan.