It is that time of year again when several of my personal insurance policies are up for renewal, including two life insurance policies. To be honest, given my age and the expense, I found myself questioning whether I still need them, considering I am paying my term life insurance premiums only to benefit those who are left behind, with nothing for me to financially gain.

However, life has a way of reminding you why you make certain choices, and for me, that reminder came with a heartbreaking call from my good friend, letting me know her mother had passed away.

They say you go through the five stages of grief (Kübler-Ross Model), and when I lost my mum 13 years ago, I would say those stages were pretty accurate for me:

— Denial

— Anger

— Bargaining

— Depression

— Acceptance

For my friend, I would say she is between Stage 2 and 3, because as she is dealing with the grief of losing her last parent, and her and her brother are also carrying the weight of completing their mother’s final wishes while bearing the financial responsibility (the anger stage) for the funeral and celebration of life service, along with all the other costs that come with closing out a chapter in life.

Now, let's face it: funerals, burials, and celebration of life services come with a price tag. When you are grieving, you just pay for it because it is a task that needs to be ticked off a list.

However, down the road when the veil of the initial shock begins to lift, you do begin to wonder why, in this instance, the deceased spent her last months writing down her final wishes for the service she wanted, as opposed to making sure there was money set aside to fund it.

The reality is, in this situation, had her mother had a life insurance policy, it would have paid out upon her death and could have gone towards covering these expenses. Yes, hindsight is 20/20, but it does remind you of the benefits.

With that in mind, I thought it might be helpful to understand life insurance, the options available, and why people purchase it.

On a personal level, life insurance is predominantly designed to provide a financial safety net for loved ones upon the policyholder's death, paying out a death benefit to beneficiaries. It comes in various forms tailored to different needs, from temporary coverage to lifelong coverage with investment options and/or dividends.

For those who are new to life insurance, it involves three key relationships that define its structure and operation:

The policyholder, who purchases and owns the policy from the insurer (insurance company), paying premiums to maintain coverage. This contract ensures the insurer assumes the risk of paying the death benefit upon the insured’s death.

The life insured is often the same as the policyholder, but can differ (e.g., a parent insuring a child); the insured's life is covered, triggering the financial benefit if the insured passes away. The policyholder controls terms like beneficiaries but must prove insurable interest.

The policy beneficiaries are designated by the policyholder to receive the financial benefit, bypassing probate for quick access. There are two types of beneficiaries: primary beneficiaries claim first; contingent beneficiaries follow if primary beneficiaries predecease.

For most of us in Bermuda, we will have coverage in at least one of these types of insurance: group life, term life, or whole life.

Group life insurance is a single contract purchased by an employer to cover its employees. It provides a basic death benefit, often calculated as a multiple of salary, offering financial protection to workers' families. Coverage is typically automatic upon hire, and the cost is often subsidised or fully paid by the employer.

On the other hand, term life insurance provides pure financial protection for a specific period, or “term”. If the policyholder dies within that set time frame, it pays a guaranteed death benefit to their beneficiaries. However, it lacks cash value and only covers temporary needs. It is generally the most affordable and straightforward option.

Whole life insurance is a form of permanent coverage that lasts a lifetime. It guarantees a fixed premium and a set death benefit. A portion of each payment builds cash value, which grows over time. This makes it a conservative tool for lifelong protection and predictable, long-term savings.

Now, the decision to buy life insurance is deeply personal, often driven by a profound sense of responsibility. While it is a financial tool, its true value lies in the protection and peace of mind it provides to the people you care about the most.

The primary reason people purchase life insurance is to act as a safety net for their dependents. If you are a wage earner with a spouse, children, or ageing parents who rely on your income, life insurance ensures they will not face financial devastation after you have passed away.

This death benefit can replace lost income, helping the family maintain their standard of living and cover daily essentials. It is about ensuring that a spouse is not forced to sell the family home and that children can still pursue their dreams, including funding a university education.

Life insurance can also shield loved ones from the burden of debt. Many people buy coverage to pay off a mortgage, so their family has a place to live without the weight of monthly payments. It can also settle outstanding car loans, credit cards, or personal debts, ensuring those obligations do not fall to a grieving family member or even a co-signer of a loan.

Furthermore, life insurance can cover final expenses — a policy can cover funeral costs, sparing relatives from an unexpected financial strain during an emotional time.

At the end of the day, life insurance can be used as a valuable tool to cover the unexpected or the inevitable. But one thing is certain: people still see value in its protection because one thing you never hear someone say is, “I am so glad they didn't have life insurance.”

Carla Seely has 25 years of experience in the international financial services, wealth management, and insurance industries. During her career, she has obtained several investment licences through the Canadian Securities Institute. She holds the ACSI qualification through the Chartered Institute for Securities and Investments (UK), the qualified associate financial planner (QAFP) designation through FP Canada, and the associate in insurance (AINS) designation through The Institutes. She also completed a Master’s Degree in Business and Management through University of Essex

For further inquiries or suggested topics, e-mail justaskcarla@outlook.com