Reasons to buy life insurance
For many people, the first introduction to life insurance is when a friend or “friend of a friend” obtains an insurance license. For others, a close friend or family member died without adequate coverage or life insurance. For me, I was introduced to a life insurance company where I had to schedule appointments with friends and family as I learned the ins and outs of the industry and hopefully make some sales.
Unfortunately, though, that’s how most people buy life insurance: They don’t buy it, they sell it to them. But is life insurance something you really need, or is it just an inconvenience a salesperson shoves under your nose? While the latter may seem true, there are actually many reasons why you should buy life insurance.
As we age, get married, raise 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 best tightrope walker in the world, no doubt. You could perform without a net, but “why?” You appreciate your life and the lives of those close to you and you would not do anything to show that you feel differently. Let’s face it, we have no control over the unpredictability of life or unforeseen events. With that in mind, just as a safety net protects life from uncertainty, so does life insurance. It is an indispensable and fundamental foundation for a solid financial plan. Over the years, life insurance has given many caring and responsible individuals the peace of mind that money would be available to protect those most important to their lives, their family, and their assets in a variety of ways, including:
1. To pay final expenses
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 at my death.
2. To cover the expenses of the children
Like most caring and responsible parents, you need to make sure our children are well cared for and can afford a quality college education. For this reason, additional coverage is absolutely essential while the children are still at home.
3. To replace spouse’s income
If a parent dies while the children are young, the surviving dependent parent will need to replace that income, which is essential to their lifestyle. The responsible surviving parent would need to hire help for household chores such as cleaning the house, doing laundry, and cooking. Add to that equation if you’re a single parent, helping with schoolwork and taking your kids to doctor visits.
4. To pay debts
In addition to providing income to cover everyday living expenses, a family would need insurance to cover debts such as mortgages so that they would not have to sell the house to stay afloat.
5. To buy shares of a business partner
In a business partnership, the partners need life insurance for each of the partners. The reason is that if one dies, the others will have enough cash to buy out their heirs and pay their share of the company’s obligations without having to sell the company. They have the same needs (because of the risk of one partner dying), and they simultaneously bought life insurance for the other.
6. To pay estate taxes
Estate taxes can be high, so having insurance to pay them is essential to avoid jeopardizing assets or funds created for retirement. The use of insurance for this purpose is more common on large estates and uses permanent (rather than term) insurance to ensure coverage is maintained through the end of life.
7. To provide living benefits
With advances in medicine and rising health care costs, people are living longer, but they can’t afford it. Living benefits are an option to use the proceeds of death before the insured person dies to help with obligations or needs to relieve pressure on themselves and others.
How much coverage should I buy?
The face amount or “death benefit” of an insurance policy (i.e., the amount of income paid to the beneficiary) must be high enough to replace the after-tax income you would have earned had you lived a full life, assuming you can pay annual premiums for that amount. In other words, the insurance replaces income you didn’t have a chance to earn by living and working until retirement due to an early death.
The right amount of insurance allows your family to continue your lifestyle, even if your income is no longer available. The actual amount you should buy depends on your current and likely future income, any special circumstances that affect you or your family, and your current premium budget.
Whole life or term?
Some people prefer to drive a Cadillac, Lincoln or Rolls Royce, which come with all the electronics that make driving as safe and easy as possible. Others prefer less personalized brands, equally reliable as their more expensive cousins, but requiring more hands-on attention.
All life is the “Cadillac” of insurance; These companies try to do everything for you, specifically investing a portion of your premiums so that the annual cost doesn’t increase as you age. The investment feature of the insurance means that premiums are generally higher than a similar term policy with the same face value. After all, whole life insurance is meant to cover your entire life.
Term insurance, on the other hand, is term life insurance. There are no excess premiums to invest, no promises or guarantees beyond the end of the term, which can range from 1 to 30 years. The annual premium for term insurance is always less than whole life, without the investment component, but your premiums will increase (often substantially) once the term period expires.
Both types of life insurance, term or whole life (or one of its derivatives) have advantages and disadvantages; both have their place depending on the needs, wants and financial goals of the buyer. A knowledgeable professional insurance agent can help you decide which type of policy is best for you based on your circumstances. But whichever you choose, make sure you have enough coverage to meet your short- and long-term goals.
The last word
Some people mistakenly believe that life insurance is a scam. This is because premium money is lost if death does not occur during the coverage period (in the case of term insurance), or because many people live to old age and continue to pay their permanent insurance premiums. . Such detractors compare life insurance protection to gambling and forego protection altogether.
There are others, who have the belief that life insurance does not help them. For those individuals, the answer is: You are absolutely right! The truth of the matter is that life insurance is one way caring and responsible individuals help ensure that your family can move on in the event of your untimely passing, a truly difficult time of loss. Of course, there is no bet: you will die, but nobody knows when. It could be today, tomorrow, or 50 years from now, but it will happen eventually.
Do you have life insurance? Why or why not?