Life insurance to protect your family: a practical guide
When we think about protecting our family, we often think about saving money, reducing debt, or building a legacy. But there is one question we don't always ask ourselves: What would happen to the family economy if our income disappeared tomorrow?
Mortgages, rent, food, supplies, and the education of children would continue to be part of the family budget.
That is precisely where the risk life insurance, It is a tool designed to provide financial support in situations covered by the policy, primarily the death of the insured person.
Its purpose is not to indefinitely replace a person's income, but to provide a capital that allows its beneficiaries to cope more safely with an economic situation that can change suddenly.
That's why hiring a Life insurance to protect the family It should start with a much more important question than how much the policy costs: What financial needs would my family have if I were to leave?
What would happen economically to your family if your income were to disappear tomorrow?
Each family has a different economic structure.
In some households, both members of the couple contribute similar amounts of income. In others, one of them concentrates most of the family income. There are also single-parent families or people who financially support children, parents, or other family members.
Therefore, the economic impact of a death is also not the same in all cases.
Imagine a family that depends on two incomes and has two children and a mortgage outstanding. If one of those income sources disappears, the economic obligations continue: housing, food, supplies, education, transportation, and other regular expenses.
The first question that is worth analyzing is therefore, What part of the family economy depends on each person's income.
From that analysis we can begin to determine what protection would be necessary.
How does a life insurance policy help protect the family?
In a risk life insurance, the insured is protected against the risks set out in the policy.
The essential coverage is usually death. If this occurs due to a covered cause while the policy is in force, the beneficiaries receive the insured capital according to the contracted conditions.
In addition, depending on the product, other guarantees may be included, such as certain situations of disability, serious or life-threatening illnesses, or additional capital due to accidents.
This capital can help the family meet various economic needs:
To amortize a mortgage or other loans in full or in part.
Compensate for a certain period the loss of income.
Maintain the usual household expenses.
Fund future needs related to children.
Having liquidity to reorganize the family economy.
It is important to remember that the guarantees, limits, and exclusions depend on each contract. Therefore, before contracting any life insurance, it is essential to review the specific terms of the policy.
Who should consider taking out a family life insurance policy?
There is no identical answer for all people.
A simple way to analyze it is to ask yourself:
Is there anyone who would suffer financially if my income disappeared?
When the answer is affirmative, it makes sense to study the protection needs.
Families with children
Having children often increases both a family's current expenses and future financial needs.
Food, housing, activities, studies or education are expenses that can be sustained for many years.
Therefore, when there are financially dependent children, it is advisable to analyze for how long they would need financial support if one of the parents were to be absent.
The goal should not be to choose an arbitrary amount, but to relate the insured capital to the real needs of the family.
Couples with a strong dependence on one of the income sources
In some families, there is a significant difference in the income of both members of the couple.
If one of them contributes the majority of economic resources, their death could lead to a particularly significant reduction in available income.
In this scenario, it may be advisable to analyze how much the other member of the couple would need to reorganize the family economy and for how long.
Families with a mortgage or other debts
The existence of a mortgage is one of the most common reasons for considering life insurance.
However, Protecting the family does not necessarily mean limiting the insured capital to the amount still owed on the mortgage..
Canceling or reducing a debt can significantly ease the family budget, but the family will still need resources to cover its daily expenses.
That is why it is advisable to study together debt, income, savings and family needs.
Self-employed individuals and professionals
Self-employed workers and professionals should also pay special attention to family protection.
In addition to household needs, there may be loan requirements related to the activity, financial commitments, or a high family dependence on the income generated by the professional.
In these cases, it is especially important to differentiate between personal and family protection from specific protection for professional activity.
How much money would your family need if you were to disappear?
This is probably one of the most important questions when hiring life insurance.
There is no adequate amount for everyone.
Capital should be determined after conducting an analysis of the family's economic needs.
Outstanding debts
The first block we can review are the financial obligations:
Mortgage pending.
Personal loans.
Vehicle financing.
Other relevant family debts.
Reducing these obligations can significantly reduce the costs that the family will have to bear.
Income that the family would no longer receive
The second element is the loss of income.
We can ask ourselves how much each person contributes annually to the family budget and for how long it would be reasonable to provide an economic cushion for those who depend on that income.
It is not necessarily a matter of multiplying the salary by a certain number of years. It is necessary to jointly assess income, expenses, assets, and future needs.
Expenses related to children
When there are economically dependent children, it is also advisable to consider the timeframe until they are expected to achieve their economic independence.
The age of the children can significantly change the needs for protection.
A family with a two-year-old child has a spending horizon that is potentially different from that of another family whose children are already close to entering the labor market.
Savings and disposable wealth
The analysis should not be carried out solely from the perspective of costs.
It is also necessary to consider the resources that the family already has:
Savings.
Investments and other financial assets.
Other existing life insurance policies.
Available heritage.
Possible public benefits when its requirements are met.
The difference between the projected economic needs and the available resources allows for a much more reasonable estimate of the necessary protection.
Protecting the family goes beyond paying the mortgage
One of the mistakes that can be made when sizing a life insurance policy is to automatically equate the insured capital with the mortgage debt.
Imagine a family that has 120,000 euros in mortgage debt and borrows exactly that amount.
If the death occurs and the capital is used entirely to pay off that debt, the family may be left without a mortgage, but they will also have lost one of their income sources.
He will still need to cope with food, supplies, transportation, education, and other expenses.
That's why, Life insurance should be analyzed from a global family perspective and not solely from a mortgage perspective.
The objective is to determine what economic impact the loss of one person would have and what resources would be needed to cope with it.
Should both members of the couple have life insurance?
This is another important issue.
In a family with two adult members, it should not be solely analyzed who has the higher salary.
It should also be studied what economic impact the absence of each one would have.
Even when one of the members of the couple does not work outside the home or has a lower income, their contribution can have significant economic value.
Childcare, family organization, and other tasks may have to be replaced by external services or by a reduction in the working hours of the other member of the couple.
That's why, The insurance needs of each member should be analyzed individually, Instead of automatically assuming that only those with higher incomes need insurance.
Who receives the money from the life insurance?
In a life insurance policy, it is especially important to correctly determine who the beneficiaries will be.
Law 50/1980 on Insurance Contracts establishes that the beneficiary can be designated by the policyholder and that this designation can subsequently be modified without the consent of the insurer.
Designation can be made in the policy itself, through a written declaration communicated to the insurer, or through a will.
For this reason, in addition to choosing the capital and coverage correctly, it is advisable to periodically review the designation of beneficiaries.
Family changes such as marriage, divorce, the birth of children, or certain property changes may make it advisable to review the policy.
When is it advisable to review life insurance?
The needs of a family evolve.
The insurance that might have been appropriate when the first child was born may no longer meet family needs ten years later.
Some particularly suitable moments for reviewing protection are:
Birth or adoption of a child.
Buying a home.
The signing or significant amortisation of a mortgage.
Marriage or a significant change in the family structure.
Significant changes in income.
Starting an activity as a self-employed person.
Significant increase or decrease in wealth.
Economic independence for the children.
Regular review allows checking whether the capital and guarantees continue to respond to the real situation of the family.
The key: adapting the protection to the real needs of your family
Buying life insurance shouldn't just consist of choosing a sum and comparing prices.
First, you have to understand What do we want to protect.
Two people of the same age and with similar incomes may need very different amounts of capital if one has young children and a mortgage, while the other has no financially dependent family members or significant debts.
That is why, at PIB Group Iberia, we analyze personal and family needs before studying the various available alternatives.
As an insurance broker, we can compare solutions from different insurers and assess aspects such as capital, coverage, conditions, and protection needs to find a solution tailored to each situation.
Because the really important question is not just how much a life insurance policy costs, but What financial protection would your family need if you were to pass away one day?.
Frequently asked questions about family life insurance
Do I need life insurance if I have children?
It depends on your financial situation. If your children depend on your income, it is reasonable to analyze what impact your death would have on the family economy and what resources would be available to meet their future needs.
Is life insurance only there to pay the mortgage?
No. The capital can be used to cover various economic needs depending on the policy and the designated beneficiaries. A mortgage can be one of them, but loss of income and the family’s future needs must also be considered.
How much capital should I hire?
There is no universal amount. It is advisable to assess the outstanding debts, the income the family would no longer receive, future expenses, financially dependent persons, and available savings and other resources.
Who pays the life insurance when the insured dies?
The capital corresponds to the beneficiaries determined in accordance with the contract and applicable regulations. The beneficiary may designate them in the policy and subsequently modify that designation in accordance with the legally established terms.
Can I modify my insurance if my family situation changes?
Protection needs may change and it is advisable to periodically review the policy. The specific possibility of modifying capital, guarantees or other elements will depend on the terms of the contract and may require a new risk assessment by the insurer.
Protects the economic future of those who depend on you
Each family has different needs. Therefore, before contracting a life insurance policy, it is advisable to analyze income, debts, savings, dependents, and future needs.
At PIB Group Iberia we can help you analyze your situation and compare different options to find a protection tailored to the real needs of your family.
Contact us at PIB Group Iberia for personalised advice without obligation.
