Reasons to buy life insurance

For many people, the first encounter with life insurance is when a friend or a “friend of a friend” gets an insurance license. For others, a close friend or relative died without adequate coverage or life insurance. For me, I was introduced to a life insurance company where I had to make arrangements with friends and family while learning the ends and outs of the industry and hopefully make some sales.

Unfortunately, however, this is how most people buy life insurance – they don’t buy it, it’s sold to them. But is life insurance something you really need, or is it just an inconvenience that a salesperson shoves under your nose? While it may seem like the latter is true, there are actually many reasons why you should get a life insurance policy.

As we get older, get married, start a family or start a business, we need to understand that life insurance is absolutely necessary. For example, imagine a safety net. You may be the greatest tightrope walker in the world, hands down. You could perform without a net, but “Why?” You cherish your life and the lives of your loved ones and you wouldn’t do anything to show that you felt differently. Let’s face it, we have no control over life’s unpredictability or unforeseen events. With that in mind, just as a safety net protects the precarious life, so does life insurance. It is an indispensable and fundamental basis for a sound financial plan. Over the years, life insurance has given many caring and responsible individuals the peace of mind of knowing that money would be available to protect the most important individuals in their lives, families and estates in a number of ways, including:

1. To pay the final charges

The cost of a funeral and burial can easily run into the tens of thousands of dollars, and I don’t want my wife, parents, or children to suffer financially as well as emotionally upon my death.

2. To cover the expenses of children

Like most caring and responsible parents, it is imperative to make sure our children are well cared for and can afford a quality college education. Therefore, additional coverage is absolutely necessary while the children are still at home.

3. To replace the spouse’s income

If one parent dies while the children are young, the surviving caring parent must replace that income, which is essential to their lifestyle. The responsible surviving parent should hire help for household chores such as cleaning the house, doing laundry, and cooking. Add to that equation being a single parent, helping with schoolwork, and taking your kids to doctor visits.

4. To pay off debts

In addition to an income to cover day-to-day living expenses, a family would need insurance to cover debts such as the mortgage so they don’t have to sell the house to stay afloat.

5. To buy a business partner’s stock

In a business partnership, the partners need insurance for each other’s lives. The reason is that if one dies, the others will have enough money to buy his interest from his heirs and pay his share of the company’s liabilities without having to sell the company itself. They have the same needs (because of the risk that one of the partners could die) and they bought insurance for each other’s lives at the same time.

6. To pay off estate taxes

Property taxes can be high, so having insurance to pay them is essential to avoid compromising assets or funds built up for retirement. The use of insurance for this purpose is most common in large estates, using permanent (rather than temporary) insurance to ensure coverage lasts until the end of life.

See also  Health insurance - an urgent blessing

7. To provide life benefits

With advances in medicine and rising healthcare costs, people are living longer but can’t afford it. Living benefits is an option to use death benefits before the insured dies to help with obligations or necessities to relieve pressure on self and others.

How much coverage should I buy?

The face amount, or “death benefit” of an insurance policy (i.e., the amount of proceeds paid to the beneficiary) must be high enough to replace the after-tax income you would have earned had you lived a full life of it assuming you can pay the annual premium for that amount. In other words, the insurance replaces the income you could not earn due to premature death by living and working until you retire.

With the right insurance, your family can continue their lifestyle even though your income is no longer available. The actual amount you should purchase depends on your current and likely future incomes, any special circumstances affecting you or your family, and your existing premium budget.

Whole life or term?

Some people prefer to drive Cadillac, Lincoln or Rolls Royce, which come with all the electronic gadgets that make driving as safe and easy as possible. Others prefer less bespoke brands, as reliable as their more expensive cousins, but require more hands-on attention.

All life is the “Cadillac” of insurance; these companies try to do everything for you, especially by investing a portion of your premiums so that annual costs don’t increase as you get older. The investment characteristic of the insurance means that the premiums are generally higher than those of a policy with the same term and the same face value. After all, life insurance is meant to cover your entire life.

Term life insurance, on the other hand, is a term life insurance policy. There are no excess premiums to invest, and no promises or guarantees after maturity, which can range from 1 to 30 years. The annual premium for term life insurance is always less than whole life, without the investment component, but your premiums rise (often significantly) when the term comes to an end.

Both types of life insurance, term life insurance or life insurance (or one of their derivatives) have advantages and disadvantages; both have their place depending on the needs, desires and financial goals of the buyer. An expert professional insurance agent can help you decide which type of policy is best for you, depending on your circumstances. But whatever you choose, make sure you have enough coverage to meet your short-term and long-term goals.

The last word

Some people mistakenly believe that life insurance is a scam. This is because the money for premiums is lost if the death does not occur during the coverage period (in the case of term life insurance), or because many people live to an advanced age and continue to pay their permanent insurance premiums. Such naysayers compare life insurance protection to gambling and forego protection entirely.

Others believe that life insurance does not help them. For those individuals, the answer is: you are absolutely right! The truth is that life insurance is a way for caring and responsible people to ensure that their family can continue to move forward in the event of your untimely death, a truly difficult time of loss. Of course, there is no bet – you will die, but no one knows when. It could be today, tomorrow or 50 years in the future, but it will happen eventually.

See also  Effects of deductions versus distribution costs

Do you have life insurance? Why or why not?