Life insurance provides financial protection for your dependents when you are no longer around. The main benefits are ensuring living expenses, paying off mortgage debt and maintaining your family’s standard of living. For business owners and the self-employed, life insurance also provides business continuity and protection for business partners.
What is life insurance and why is it important for your family?
Life insurance is a financial agreement in which the insurer pays a set amount to your dependents upon your death. For families with children, this insurance provides an essential safety net against financial hardship when the breadwinner dies.
The fundamental value lies in preventing financial distress. When you die as the main breadwinner, your partner suddenly faces the challenge of generating the family income alone. At the same time, all the fixed expenses remain: mortgage, insurance, school costs and daily expenses.
Life insurance ensures that your family is not forced to make drastic changes. Your children can stay in the same school, the mortgage can be paid off and your partner will have time to organize the new situation without immediate financial pressure.
What financial security does life insurance provide to your dependents?
Life insurance ensures financial stability by covering various expenses. The insured amount can be used for mortgage payments, allowing your family to continue living debt-free in their own home. It also covers daily living expenses and future expenses.
Financial security spans several areas:
- Repayment of mortgage debt and other loans
- Coverage of monthly fixed expenses over a period of time
- Financing child studies and training costs
- Buffer for contingencies and medical expenses
- Opportunity for your partner to work less during the grieving period
This broad financial protection gives your loved ones the space to recover emotionally without the added stress of lack of money. They can make informed decisions about their future instead of being forced to make choices due to financial distress.
How does term life insurance protect your family income?
Term life insurance replaces lost income by paying a fixed amount to your dependents. This particular form of life insurance is designed to cushion the financial impact of the loss of the breadwinner and maintain the family’s standard of living.
The protection works by matching the insured amount to your annual income and the period during which your family needs this income. Many families choose an insured amount equal to five to 10 times the breadwinner’s annual income.
At VDBR, we help you determine the right amount by analyzing your specific situation. We look at your current income, future income growth, the number of children and their ages. On our website you can calculate indicatively how much you can save on your term life insurance.
What different types of life insurance are available?
There are three main types of life insurance available, each with specific features and applications. The choice depends on your personal situation and financial goals.
Death benefit insurance provides pure risk coverage with no savings component. This insurance is best suited for young families who want maximum protection at low premium costs. The insured amount is paid out only in the event of death within the term.
Housing expense insurance is specifically designed to pay off the mortgage upon death. The insured amount runs parallel to the mortgage debt, so your dependents can always continue to live in your home debt-free.
Mixed life insurance combines risk coverage with wealth accumulation. Part of the premium goes toward risk coverage, and the other part is invested or saved. This type of insurance is more complex and often more expensive, but it also offers benefit in life.
What are the benefits of life insurance for entrepreneurs and the self-employed?
For business owners and the self-employed, life insurance offers specific benefits beyond family protection. Business continuity is key, as the death of an entrepreneur often has a direct impact on the survival of the business.
A life insurance policy can be used to buy out business partners so that the next of kin are not forced to sell company shares quickly on unfavorable terms. The sum insured allows time to transfer or sell the business in an orderly manner.
Key benefits for business owners include:
- Protection of business value for survivors
- Financing business acquisition by partners
- Coverage of corporate loans and business obligations
- Compensation for lost operating income
- Possibility of tax-advantaged premium deduction
We understand that the situation of independent business owners requires extra attention. That’s why at VDBR, we offer specialized guidance for entrepreneurs in securing financial protection that fits their unique business situation.
How do you determine the correct sum insured for your life insurance policy?
Determining the right insured amount requires a thorough analysis of your financial situation and future needs. The amount should be sufficient to provide financial security for your dependents, but not so high that the premium becomes unaffordable.
Start by taking stock of your current financial obligations. Add up your mortgage debt, other loans and annual fixed expenses. Add the amount needed for living expenses during the period your family needs them.
Important factors in calculation:
- Remaining mortgage debt and other loans
- Annual income and desired replacement period
- Number of children and their future education costs
- Existing savings and other insurance
- Expected funeral and settlement costs
A rule of thumb is to set the insured amount between five and 10 times your annual income, depending on your family situation. Families with young children often need a higher amount than couples without children.
At VDBR we are happy to make a personal inventory of your situation. In a no-obligation discussion, we analyze your specific circumstances and advise on the optimal insured amount. Please contact us for a comprehensive analysis of your insurance needs.
Life insurance is an investment in the financial security of your loved ones. By choosing the right coverage, you ensure that your family has a stable financial future even without you. We are happy to help you make this important choice with transparent advice and personal guidance.
