At the age of 20, Ahmad, calculated that he needs RM200,000 in life insurance coverage. Ten years has passed and he still has the same insurance coverage.
However his needs are very different now. At 20, he was a clerk earning RM700 a month, his needs were simple and he had no dependants.
He is now an executive earning RM1,800 a month and he has recently become a father.
Life insurance needs are not static. They may change because your dependants and liabilities may increase or decrease and your lifestyle and that of your dependants may have changed.
It is advised that you review your life insurance needs once every two years, or whenever you have had a major life change. The following are reasons why one should re-look the life insurance needs :
Getting married is a big life event that may change your life insurance needs, particularly if your spouse is not working and dependant on your income. Even if he or she is working, the amount that your spouse earns may be less than what you earn, and your spouse may be partially dependent on your income. A non-working spouse would need to consider the services provided to the family, such as childcare or housekeeping, and how much that contributes in economic terms to the family unit. Similarly, a divorce calls for a review.
Having a baby is another major life change that requires a life insurance review. A child is totally dependent on his parents for all his survival needs, which on top of love, includes food, childcare and education needs. You now need to recalculate your life insurance coverage to factor in these needs should you no longer be around.
Being a home owner is also a major milestone in your life. When you first purchase a new house, this is a suitable time to re-look your life insurance needs. Unless you have purchased a mortgage reducing term assurance plan that fits perfectly into your mortgage, review the insurance coverage every few years as your mortgage reduces. Review your needs again should you refinance the property.
If you or your spouse recently received a large inheritance or won the lottery, it may also be time to review your life insurance needs. A large increase in funds or assets may mean a decrease in life insurance needs.
If you or your spouse have received a promotion recently, this may also be the time to relook the life insurance coverage. A promotion often means greater income, and often as income increases, so does lifestyle. While a fresh graduate may be content with eating at the mamak stall every day, a senior executive and his family may occasionally indulge in their favourite cuisine at a restaurant. Without factoring in this lifestyle change, the dependants may have to suffer a big change in lifestyle should the insured suffer premature death.
Having one or both parents retire or about to retire, means that they may become dependants, particularly if they have no retirement savings of their own. If you are a non-working spouse providing long-term care to a parent, consider who will provide the care in your absence, and how much it would cost.
* This article is brought to you by the Life Insurance Association of Malaysia.
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Source: New Sunday Times