Updated March 18, 2019

Why Life Insurance is Important

Read more about Life Insurance

Life insurance helps provide for your family after death. But that is not the only reason to get it. Read on for why it's smart to get life insurance.

Life insurance is not fun to think about. But it should be an important part of your financial plan.

What will happen to the people around you should you suddenly die? Would your family be okay?

Life insurance is one of those things you wish you'll never use. But you're glad you have it. It's a relatively affordable way to make sure your loved ones are provided for.

Is it necessary for your situation?

Read on to see who needs it and why.

Why Buy Life Insurance?

  • Replaces your income should you die.
  • Pays off debt you owe.
  • Provides for your children's care and education.
  • Pays off estate taxes.
  • Transfers ownership of a business.

Sometimes, creditors may even require you to purchase life insurance that will pay off a debt in case you die before the debt is paid in full.

Why Life Insurance Is Important

  • Life insurance greatly reduces the worry that your family would not make it financially if one parent were to die. It will allow the surviving members to keep their home and feed the children.

  • Life insurance is a critical aspect of many partnerships and small businesses. The chance of a business surviving a founder's death without life insurance is very low.

  • Life insurance allows the living to live more fully. Families can plan for the future, purchase homes, and not feel they have to save every extra penny in case someone dies unexpectedly.

Who Should Buy Life Insurance

Life insurance is a good idea if any of these situations apply to you.

  • If you have someone who relies on your income and will financially suffer if you're gone. This also includes any services you provide, such as child care.

  • If you and your families are not independently wealthy.

  • If you're a partner in a business and need to transfer ownership of the business when you die.

  • If you will need to pay hefty state and federal estate taxes upon death.

10 Benefits and Uses of Life Insurance

  1. Affordable Peace of Mind
    Life insurance provides financial security for pennies on the dollar. Term insurance is not very expensive if you buy it at an earlier age. A $500,000 policy for a 30-year-old could cost just $30/month.

  2. Immediate Pay Out
    The proceeds of a life insurance policy are available almost immediately. It's also free from probate and not taxed. This saves your family from hassle while they're also dealing with grief.

    And unlike a will, your beneficiary designation in a life insurance policy cannot usually be contested.

  3. Income/Service Replacement
    If you died unexpectedly, would your family suffer without your income? Life insurance helps make up for the now-missing income.

    If a stay-at-home parent died, you would need to replace the services he/she provided. Maybe you'd need to send your kids to daycare. Or hire a nanny, tutor, cleaner, etc. The annual cost of replacing all the services a stay-at-home parent provides can cost over $100,000.

  4. Keep Your Home
    Buying a home can be a scary experience for a young couple. Life insurance removes the worry about what would happen to the money you invested in the house if one of you dies prematurely. You can use it to pay off the rest of your mortgage.

  5. Pay Off Debt
    You can use life insurance to pay your debts, such as credit card debt, student loans, medical debt, etc. This way, your family is not burdened with the responsibility. They won't have to sell your assets in order to pay your debts.

  6. Pay for Children's Education
    College is expensive. You can take out enough life insurance to make sure your kids' college educations are provided for.

  7. Pay for Funeral Expenses
    Funerals can cost over $10,000. Life insurance helps families that don't have much money preserve dignity in death by paying for the funeral and a headstone.

  8. Family Planning
    Life insurance makes family planning easier. You don't have to wait until you have a large nest egg saved before you begin the family you want. You simply buy insurance to protect against worst-case scenarios.

  9. Pay Estate Taxes
    Wealthy families with estates may need to pay estate taxes when the owner dies and the property is inherited. If this is your case, you'd want permanent life insurance so you have coverage your entire life.

  10. Transfer Business Ownership
    If you have a business partnership, you'd want to take out life insurance on each other. If you don't have life insurance and one of you dies, it could become very messy if the spouse/children inherits the other half.

    Life insurance will allow you to buy the share from the deceased estate of your partner. It will also provide equitable compensation to the family of the deceased.

3 Reasons Not to Buy Life Insurance

If one or more of these situations fits you, then you may not need life insurance.

  1. No one relies on your income or services you provide.
    This could be if you're a young single person with no dependents or plans to have children. Or if your spouse earns enough to care for him/herself. Or if your children are fully self-sufficient.

  2. You've already accumulated enough wealth.
    Is it enough to take care of your family if you were out of the picture? If so, then you may not need life insurance.

  3. You don't have debt or estate taxes.
    If you are debt-free and you don't have an estate that will be subject to estate taxes, you won't need life insurance to help pay your debts/taxes.

Also, don't buy whole life insurance if you only need temporary life insurance is (such as until your children are self-supporting adults).

Bottom Line

There are many situations where life insurance is the best solution to ensure the financial security of your family. If someone relies on your income or services, it's smart to get life insurance to provide for them if something happens to you. If you start a business, talk with a knowledgeable life insurance agent about business succession planning.

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