As a life insurance adviser for many years, the question of Life Insurance for the single person has come up many times. If we accept that Life Insurance is a product that creates a lump sum (or less frequently, a stream of income) on the death of a life insured, the single person with no dependents can rightly ask the question: "Why would/should I bother with life insurance?"
A frequent event that triggers the question is the single person buying a home, and being told by the bank or other lender, that they need life insurance.
A recent client engagement provides an interesting case study. Jaimie (not her real name) is a 42 year old professional lady earning a good salary - $74,000 per year. She travels overseas in her work, occasionally to third world countries. She has aged parents who are not wealthy. She lives well and to date has not purchased a home, but plans to do so within one year. She has savings for the deposit on her apartment and a small credit card debt incurred for a recent holiday.
Her bank had told her that they would lend to her to fund her purchase of an apartment and would require that she buy life insurance and indicated that she should buy it from the bank.
As her savings amounted to 20% of the purchase price of the apartment, we advised her that there was really no logical reason to buy life insurance. The reason one buys life insurance when taking a mortgage is to ensure that dependents do not lose their home if an income-earner dies! In Jaimie's case, there are no dependents.
If she had little or no deposit, then it would be reasonable to have some life insurance to cover possible shrinkage in value if there was a property downturn. At most though, 20% - 25% of the mortgage!
Far more important, I suggest, is the need for disablement insurance. If for example, Jaimie had an illness and couldn't work, then insurance to replace her income would be vital. A combination of income protection insurance and total and permanent disablement insurance makes a lot of sense.
A footnote to Jaimie's story: As her work took her to dodgy places where the risk of accidental death was significantly greater than here in New Zealand, Jaimie was keen to have a small life insurance cover, $50,000 to cover the cost of repatriation of her body to protect her parents from such cost.
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