If you are renter, the thought of getting life insurance may not have occurred to you. Many people live under this misconception that life insurance policies are only meant for those who own a property with a mortgage, as often times life insurance is purchased to cover your outstanding mortgage.
However, this is not the full truth at all. For renters and anyone having financial concerns, life insurance is still beneficial! Life insurance policies are designed to cover the life of the policyholder or to provide coverage for someone you care about, for instance family, spouse, children, parents, etc.
To get started, let’s explore what exactly life insurance is all about.
What Is Life Insurance?
Life insurance provides a financial safety net for your loved ones after you pass away. It is a contract or agreement between a policyholder (buyer) and an insurer (the insurance company).
When purchasing a policy, the policyholder agrees with the insurance company to make regular payments called premiums every month. Upon the policyholder’s death, the company pays out a lump sum benefit to a beneficiary whom the policyholder choses.
There are no restrictions on how the beneficiary can use this money. They can spend it on day-to-day living expenses, put some aside for big purchases, or go on a holiday with it. This can be of great help if you have financial uncertainties and obligations.
Types of Life Insurance
There are different types of life insurance policies. They can be modified to suit your needs and goals. To start, all types of life insurance fall into two major categories:
- Term life insurance
- Permanent life insurance
1. Term life insurance
Term life insurance is the most affordable option. It is a short-term policy that lasts for only a specific number of years decided by the policyholder. These years usually range from 10-30 years. With this type of policy, if the policyholder lives beyond this specified time that was set when they bought the policy, then this policy expires, and no money is paid out.
2. Permanent life insurance
Permanent life insurance is a policy that lasts for the entire life of the insurance holder. This type of policy usually generates interest with the premium being paid in. The accrued interest is called “cash value” which is discussed further below. It can be borrowed or used to take loans against the policy.
When deciding what kind of insurance policy to purchase, you will need to understand your goals and needs.
Now that it has been established that a life insurance policy is beneficial for most people, let’s circle back to renters and look at the various benefits of purchasing life insurance as a renter:
Why Renters Need Life Insurance
Most families need money to cover their day-to-day expenses. For renters, this is especially important because family members need to be able to pay the rent, or they could lose the roof over their heads.
Most of us don’t think about getting life insurance until we take on a mortgage (or have a child). However, even if you haven’t taken on a mortgage, as a renter you will still need to worry about financial uncertainties. Securing some money for the future is never a bad idea, anyway.
Things to Consider when Purchasing an Insurance Policy
Life insurance policies can ensure that the policyholder’s family and children receive a sum of money upon the demise of the policyholder. This will give the policyholder peace of mind that their kids will be provided for until they’re old enough to provide for themselves. If you have parents that need help, they might need aid for supplementing their pension or paying for their nursing home costs. Life insurance can be used to cover these costs if the insurance holder passes away.
You need to factor in everything from living expenses to bills and taxes to all the future expenses before buying a life insurance policy.
- Income protection
Insurance will help support you if you cannot work because of illness or injury. There are also short-term policies. They are known as Budget Income Protection and Full Income Protection.
Income Protection is a type of policy that can help support you in your time of need. But, it is not designed to make your financial position better. It has restrictions in place and cannot help you if you are not able to work.
- Large debts
If you as a renter have taken on significant debt, your family might not have the ability to pay it off. Passing away without life insurance set can cause many difficulties for them.
- Health factors
It’s important to consider all health factors to plan for the future, while taking into account any future injuries, critical/terminal illnesses, and disabilities. It will help you decide what kind of insurance policy you will need.
Some insurance providers will also pay out a smaller lump sum if you are diagnosed with a critical illness before you pass away. This is known as a partial payment.
If you have a critical illness that meets the provider’s definition, you will receive this payment in your time of need. Usually, this payment sum will not affect the over sum.
- Funeral costs
It’s no secret that funerals are expensive – they can cost thousands of dollars. They are also usually unexpected, which is why many people don’t plan for or save for funerals. A life insurance policy can help cover funeral costs, which will help relieve your family’s financial stress during a time of grief.
Life Insurance as an Investment
There are a range of life insurance policies available with different features. A lesser-known feature that is quite beneficial for the policyholders is that some insurance policies can help you build your wealth.
Some permanent life insurance policies come with an investment component as well. The insurer invests a part of your premium and credits your policy with the returns. The best part is that these sorts of policies offer a range of tax benefits. You can protect your family’s future, increase their inheritance, and cut down your inheritance tax bill upon death.
The Bottom Line
While many people with mortgages have life insurance, you don’t have to be a homeowner to enjoy the benefits of a policy. Life insurance payouts can help with long-term financial goals. It helps with things like saving for college or short-term expenses and rent. If your loved ones lose you and the income you provide, life insurance may help.