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You might be hearing a lot about life insurance, especially as you get older. There are many milestones that can kick off the “Do I need life insurance?” conversation. But what exactly is life insurance, and why do people decide to get it? Just like other money matters, this can be mysterious or confusing.

So, let’s take a few minutes to break down life insurance, and talk about some of the ins and outs of these policies.

What is life insurance?

Simply put, life insurance is cover that pays a lump sum if you die or, in some cases, are diagnosed with a terminal illness. This money (known as the benefit) can go to almost anyone you choose and can be used for just about anything they like.

Most people don’t like thinking about these kinds of worst-case scenarios. It’s not fun and may even feel like tempting fate. Still, it might be a good idea to consider what could happen in life and have a backup plan ready—just in case.

Why do people buy life insurance?

There are lots of reasons why people buy life cover. Here are a few:

• They want their family to have something to fall back on – When a breadwinner passes away, it can leave a dent in the household finances. Whether you work full or part-time, out of the house or as a stay-at-home parent, a life insurance policy could give your family time to get back on their feet.
• They want to help their family avoid debt – Car payments, the mortgage, household bills… these still need to be paid when someone passes away. But don’t forget about final expenses, like the cost of a funeral. Life cover could help your family keep up with bills and avoid debt as they plan your final farewell.
• They want a little peace of mind – Unless you have a crystal ball, you probably can’t predict the future. So much of life is beyond our control, from accidents to terminal illness to death. Life insurance is one way to help you and your family sleep a little more soundly, knowing that they’ll have a little something to keep them going through some of life’s toughest times.

What’s not covered by life insurance?

It’s unlikely that you’ll find a life insurance policy that covers any cause of death you can imagine. If you do, it’ll probably cost a bundle. One way insurance companies help keep their policies affordable is by including exclusions.

Exclusions are basically the things that aren’t covered by an insurance policy. These can be different from insurer to insurer, and they can even differ between two types of policies sold by the same company.

Before you buy life cover, you might want to read the policy wording to understand the exclusions. It might also make sense to talk about these with a close family member, too. This could help your family understand when the benefit will be paid and when it won’t, so there are no surprises when it’s time to make a claim.

Be prepared

Life insurance is just one way to help protect your family’s financial future. Putting a policy in place now might make a world of difference to the people you love most. It may not be the most fun way to spend your time, but it could be an important task to cross off your to-do list.

Ready to get covered? Dollar Insurance could help your family get back on its feet if the worst ever happens. Best of all, our life cover costs just $1 a day! Find out how much cover you can start with now. 

Disclaimer: The information in this article is for general use only. It doesn’t take into account your personal financial situation. If you’re unsure if this information meets your needs, you may want to seek professional financial advice.

The product information in this article was correct at the time it was published. Some details may have changed since then. For up-to-date product information, please visit the Dollar Insurance website.

About the author: Dollar Insurance is all about making insurance as painless as possible, so everyday Kiwis can make life cover and funeral cover a part of their plan.