Anyone considering purchasing life insurance should ask themselves two basic questions: first, “Am I going to die at some point?” Second, “Will it have any financial consequences for my family?” The first answer is self-evident, but if you answered “yes” to the second, you should seriously consider purchasing life insurance.
When someone dies, life insurance pays out a lump sum. This “death benefit” can be used to cover burial costs or any other financial need, such as living expenses, college tuition, or daycare. That money is also tax-free.
So, who requires life insurance? According to the Life and Health Insurance Foundation for Education, the majority of Americans do.
LIFE advises consumers to think about the worst-case scenario of what would happen if they died tomorrow: would their survivors be able to meet ongoing living expenses such as rent, mortgage payments, and day-to-day expenses? What are the long-term financial objectives of my family?
Of course, every situation is unique, so the foundation provides several different scenarios to demonstrate how life insurance can help you plan for what is often unexpected, but always unavoidable:
If A Person Is Married
Even if you don’t have children, the death of a spouse can be financially devastating. Will a survivor be able to pay off debts such as credit card balances and car loans while also covering rent and utility bills?
Those hoping to become parents should keep in mind that some life insurance companies will not issue a policy to a pregnant woman, so purchasing a policy before the baby arrives would avoid this potential issue.
Married With Children
Many families rely on two incomes to get by. Could they maintain their standard of living if one parent died unexpectedly? For many families, the answer is “no,” in which case a life insurance policy would help to alleviate the financial burden.
Parents Who Are Single
Almost four out of ten single parents have no life insurance at all. With so much responsibility on their shoulders as the sole provider, having enough life insurance could protect their children’s financial futures.
Those Who Have Grown Children
Just because the kids have graduated from college and the mortgage has been paid off does not mean that Social Security and savings will cover whatever comes next. One spouse may outlive the other by years or decades, requiring long-term financial support. These requirements can be met with the help of a life insurance policy.
The Retired Person
Large estates are taxed and must be settled over time. Life insurance is not taxed and pays out immediately, allowing heirs to pay estate taxes, funeral costs, and other debts without having to liquidate other assets quickly.
A Proprietor Of A Small Business
What would happen if a company’s owner, partner, or key employee died tomorrow? A “buy-sell” agreement can be funded by a life insurance policy. This ensures that the remaining business owners have the funds to purchase a deceased owner’s company interests at a previously agreed-upon price. A key employee can also be covered by an employer’s policy. This “key person insurance,” payable to the company, would cover the cost of replacing the employee if he or she died.
Some single people help their aging parents or siblings financially. Others may be carrying significant debt that they do not wish to pass on to their children. Life insurance rates for the young and healthy with a good family health history are also at the lowest possible rate and guarantee coverage for later in life.
Regardless of your current situation, life insurance is an effective financial tool for helping to protect one’s loved ones in the event of their death.