Anyone wondering whether they need life insurance needs to consider two basic questions: first, “Am I going to die at some point?” And second, “Will it have a financial impact on my family?” The first answer is a bit obvious, but if you answered “yes” to the second, life insurance is something to seriously consider.
Life insurance offers a lump-sum payment when someone passes away. This “death benefit” can be used to pay for the burial or any other financial need- such as living expenses, college funding or daycare. And that money is tax-free.
So who needs life insurance? Most Americans do, according to the Life and Health Insurance Foundation for Education.
LIFE recommends that consumers consider a worst-case scenario of what would happen if they died tomorrow: would their survivors be able to meet ongoing living expenses like rent, mortgage payments and day-to-day expenses? What are my family’s long-term financial goals?
Of course every situation is different, so the foundation offers several different scenarios as a way of illustrating how life insurance would play a role in planning for what’s often unexpected, but always inevitable:
If someone is married
Even without kids, the death of a spouse could bring a financial hardship. Would a surviving spouse be able to pay off debts – like credit-card balances and car loans – while also covering rent and utility bills?
Those hoping to become parents need to consider that some life insurance companies won’t issue a policy to a woman during her pregnancy, so buying a policy before there’s a baby on the way would avoid this potential problem.
Married with kids
Many families depend on two incomes to make ends meet. If one parent dies suddenly, could they maintain their standard of living on one income? For many families the answer is “no,” in which case a life insurance policy would help ease that burden.
Nearly four in 10 single parents have no life insurance whatsoever. With so much responsibility resting on their shoulders as the sole provider, having enough life insurance could safeguard the financial futures of their children.
Those with grown children
Just because the kids are through college and the mortgage is paid off doesn’t necessarily mean that Social Security and savings will take care of whatever lies ahead. One spouse could outlive the other by years or decades and have long-term financial needs. A life insurance policy can help cover these needs.
Large estates are taxed and take time to settle. Life insurance is not taxed and pays out immediately, allowing heirs to take care of estate taxes, funeral costs and other debts without having to quickly liquidate other assets.
A small business owner
What would happen to a business if the owner, a partner or a key employee died tomorrow? A life insurance policy can be structured to fund a “buy-sell” agreement. This would ensure that the remaining business owners have the funds to buy the company interests of a deceased owner at a previously agreed upon price. An employer can also take out a policy on a key employee. This “key person insurance,” payable to the company, would cover the cost of hiring a replacement if the employee died.
Some single people provide financial support for aging parents or siblings. Others might be carrying significant debt that they wouldn’t want to pass on to their family. For the young and healthy with a good family health history, life insurance rates are also at the lowest rate possible and guarantee coverage for later in life.
Regardless of your current situation, life insurance is an effective financial tool to help protect one’s loved ones, if something were to happen to them.