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Reasons to Buy Life Insurance
For many people, the first exposure to life insurance is when a friend or “friend of a friend” gets an insurance license. For others, a close friend or relative dies without adequate insurance or any life insurance. For me, I was introduced to a life insurance company where I had to make appointments with friends and family as I learned how the industry ended and hoped to make some sales.
Unfortunately, however, that’s how most people get 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 pushed on you by a salesperson? While the latter may seem true, there are actually many reasons why you should buy life insurance.
As we grow older, marry, start a family or start a business, we need to understand that life insurance is an absolute must. For example, imagine a safety net. Without a doubt, you could be the greatest tightrope walker in the world. You can perform without a net, but, “Why?” You value your life and the lives of those close to you, and you won’t do anything to show that you feel differently. Let’s face it, we have no control over life’s unpredictability or unforeseen events. With this in mind, just like a safety net protects an uncertain life, so does life insurance. It is the indispensable foundation of a sound financial plan. Over the years, life insurance has given many caring and responsible people peace of mind knowing that there are many ways to obtain funds to protect the most important in their lives, families and possessions, including:
1. Pay the final fee
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 in addition to the emotional pain after my death.
2. Paying for the child
Like most caring and responsible parents, it is necessary to ensure that our children are well cared for and can afford a quality college education. Therefore, additional coverage is absolutely necessary while the child is still at home.
3. Income in lieu of spouse
If one of the parents dies while the child is young, the surviving caring parent needs supplemental income that is essential to their lifestyle. Responsible surviving parents need to hire someone to help with household chores such as cleaning, laundry, and cooking. If it’s single parenting, helping with school, taking kids to the doctor, then add that to the equation.
4. Pay off your debts
In addition to providing income to cover daily living expenses, a family needs insurance to cover debts such as mortgages so they don’t have to sell their home to make ends meet.
5. Purchase of shares in business partners
In a business partnership, the partners need to insure the life of each other’s partners. The reason is that if one dies, someone else will have enough cash to buy his interest from his heirs and pay his share of the company’s debt without having to sell the company itself. They have the same needs (due to the risk that one of the partners may die), and they simultaneously buy insurance on each other’s lives.
6. Pay estate tax
Estate taxes can be high, so purchasing insurance to cover estate taxes is critical to avoid jeopardizing assets or funds built for retirement. The use of insurance for this purpose is most common on large estates, and permanent (rather than term) insurance is used to ensure coverage continues until the end of life.
7. Provide life benefits
With the advancement of medicine and the rising cost of health care, people are living longer but cannot afford it. A living benefit is an option to use the death proceeds to help meet obligations or necessities prior to the insured’s death to relieve stress for yourself and others.
How much insurance should I buy?
The policy’s face amount or “death benefit” (i.e. the amount of benefit paid to beneficiaries) should be high enough to replace the after-tax income you would have received if you lived a fulfilling life, provided you can pay that amount in annual premiums . In other words, insurance replaces the income you would have had no chance to live and work to earn due to untimely death until retirement.
The right amount of coverage allows your family to continue their lifestyle even if you no longer have an income. The actual amount you should buy depends on your current and likely future income, any special circumstances affecting you or your family, and your existing premium budget.
Life or tenure?
Some people like to drive a Cadillac, Lincoln or Rolls Royce, which are equipped with all the electronics to make driving as safe and easy as possible. Others prefer less customized products that are just as reliable as their more expensive counterparts but require more hands-on attention.
Whole life insurance is the “Cadillac” of insurance; these companies try to do everything for you, especially investing a portion of your premium so that the annual cost doesn’t increase as you age. The investment nature of insurance means that premiums are generally higher than for policies of similar duration at the same face value. After all, whole life insurance is designed to protect you for the rest of your life.
Term insurance, on the other hand, is temporary life insurance. There are no excess premiums to invest and no commitment or guarantee beyond the end of the term, which can vary from 1 year to 30 years. Term insurance always has lower annual premiums than whole life insurance, lacks an investment component, but once the term expires, your premiums go up (often substantially).
Both types of life insurance, term or whole life (or one of its derivatives), have benefits and drawbacks; both have their place depending on the needs, wishes and financial goals of the buyer. A knowledgeable and professional insurance agent can help you decide which 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.
Some people mistakenly believe that life insurance is a scam. This is because premiums are lost if a death does not occur during the period of coverage (in the case of term insurance), or because many people live to an advanced age and continue to pay their permanent premiums. These naysayers liken life insurance protection to gambling and forego protection altogether.
Still others feel that life insurance won’t help them. For those people, the answer is: you are absolutely right! The truth of the matter is that life insurance is a way for caring and responsible people to help ensure their family moves forward in the event of your untimely death, a truly difficult loss. period. Of course, there’s no betting – you’re going to die, but no one knows when. It could be today, tomorrow or 50 years in the future, but it will happen eventually.
Do you have life insurance? Why or why not?
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