Life Insurance Case Studies

Life insurance can benefit singles and families of all different types in many different ways.

Many people wrongly believe that life insurance is only for families with mortgages, however the following case studies are designed to show how life insurance can benefit almost anyone.

Case Study 1 – The Young Single

David is a 25 year old carpenter from Sydney.  He works hard and plays hard, and isn’t scared to borrow money to fund his love of toys.

He currently has a $30,000 loan on his new ute, a $15,000 loan on his jet-ski and a personal loan of $10,000 which he used to buy new tools.

David is far from ready to settle down, and is happy to rent a big house with a few mates rather than buying his own place.  He has no financial dependants and is happy living the single life.

Like many other young males David sees himself as being indestructible, but a few years ago he took his father’s advice and took out a small insurance package which included $100,000 of life insurance.

David certainly doesn’t expect to claim on his policy anytime soon, but he enjoys the peace of mind knowing that if something did happen to him his parents would not be burdened with having to repay his debts.

Of course David’s parents could sell his ute, jet-ski and other belongings, but David knows that depreciation would make these assets worth far less than the money he owes on them.

David’s small life insurance policy costs him less than $20 a month, but he’s happy knowing that the life insurance payout will save his parents from the considerable financial burden of repaying his debts and covering his funeral expenses.

Case Study 2 – The Young Family

Peter and Sandy are both in their early thirties and have two children aged seven and nine.  They live reasonably comfortably on Peter’s wage and have a large mortgage on their home.

Peter and Sandy have been together since high school, and despite completing a university degree, Sandy has never been employed, instead choosing to stay at home to look after their children.

Although the children are now both in school and Sandy could work if she wanted, she doesn’t feel comfortable in doing so since she has never been employed before, and Peter’s decent wage means she doesn’t have to.

The children mean everything to Peter and Sandy, and for that reason they have locked in their financial security using a range of personal insurances, including life insurance.

Peter has life insurance of well over one million dollars.  At first glance this may seem a lot for an average family, however the money can be very quickly accounted for.

Peter’s life insurance has been calculated to repay their $600,000 mortgage and $20,000 car loan.  He has also included an extra $30,000 to ensure that his funeral expenses will be covered along with any other incidental costs.

What makes up the bulk of Peter’s life insurance is a lump sum to be invested for his family’s benefit.  Peter knows that Sandy would not be comfortable with working full time, so he has allowed for a large lump sum that can be conservatively invested to return an amount equal to his annual income for the next twenty years.

The amount is significant, but it will comfortably see the children through their schooling years, including university if they choose.  Peter hopes to provide this support from his income whilst still working, but thanks to his life insurance he will still be able to provide it even if he isn’t around.

Peter and Sandy know that their financial security doesn’t just rely on him though.  Sandy is also an important part of the family, and her loss would also have a massive impact on the family, including a financial impact.

For this reason they also have a life insurance policy on Sandy.  Sandy’s life insurance policy is smaller that Peter’s, but is still large enough to repay a portion of their mortgage, which will relieve some financial stress from Peter in what would be a very stressful period.

Sandy’s life insurance also includes a lump sum of $50,000 to be invested for the benefit of their children.  This money will be given to her children when they reach age 21, giving them a great head start in life.  It’s her way of giving her children a helping hand if she can’t be there in person.

Peter and Sandy plan to be around to see their children turn into adults and have their own families, but at least they know if something does happen, their children will be looked after financially.

Case Study 3 – The Empty Nesters

John and Margaret are in their late fifties, and thanks to some good financial decisions when they were younger, they are able to live comfortably on a combination of John’s part-time consulting work along with their investment income.

They have four adult children, three of whom live with their own young families overseas.  Two of them are in the UK where the family was original from, and one in the US.

John and Margaret have a small mortgage on their family home, which was taken out a few years prior to for some renovations.  Other than that they have no major debts besides a small credit card balance.

Although they know that their home and other investments could be sold to comfortably cover their debts and leave their adult children with some money, they would like to keep their beachside home of thirty years in the family, to be used by the family members whenever they wish.

To achieve this, John and Margaret have each taken out modestly sized life insurance policies.  The policies are not large, but are sufficient to repay their small mortgage and cover their funeral expenses.

John and Margaret did not want to burden their children with the considerable costs of flying their young families back to Australia for a funeral, so they also included an additional $100,000 in their life insurance policies that would allow each of the three overseas-based families to return to Australia without having to worry about the cost.

Although life insurance isn’t exactly cheap for John and Margaret due to their ages, the premiums are affordable given the relatively low amount of cover required, and the cost is worth it for them, knowing that their children will not be burdened with the costs of flying their families back to Australia for a funeral.

Furthermore, the life insurance money will also ensure that the family home can be kept in the family for their exclusive use, which is very important to both John and Margaret.

Life Insurance is for everyone

As we can see, people of all ages and all financial situations can benefit from a well planned out strategy that incorporates life insurance.

We all have different goals and objectives in life as well as death, and life insurance can help us to achieve them in a cost effective way.