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 passed away without adequate coverage or no life insurance. For me, I met 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, however, this is 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 that a salesperson puts right under your nose? While the latter may seem to be true, there are actually many reasons why you should buy life insurance.
As we get older, get married, start a family, or start a business, we must understand that life insurance is absolutely necessary. For example, imagine a safety net. You may be the best tightrope walker in the world, without a doubt. You could act without a net, but “Why?” You appreciate your life and the lives of your loved ones and you wouldn’t do anything to show that you feel different. 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 essential and fundamental foundation for a solid financial plan. Over the years, life insurance has given many caring and responsible individuals the peace of mind of knowing that money would be available to protect those most important in their life, family, and wealth in a variety of ways, including include:
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 in my death.
2. To cover the expenses of the children
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. For this reason, additional coverage is absolutely essential while the children are still at home.
3. To replace the spouse’s income
If one parent passes away while the children are young, the surviving loving parent would need to replace that income, which is essential to their lifestyle. The responsible surviving parent would need to hire help with household chores such as cleaning the house, doing laundry, and cooking. Add to that equation if you are a single parent, helping with school work and taking your children to doctor visits.
4. To pay off debts
In addition to providing income to cover the expenses of daily living, a family would need insurance to cover debts such as the mortgage, so that they do not have to sell the house to stay afloat.
5. To buy shares of a business partner
In a commercial partnership, the partners need life insurance between them. The reason is that if one dies, the others will have enough cash to buy their share from their heirs and pay their share of the company’s obligations without having to sell the company itself. They have the same needs (due to the risk of one partner dying) and simultaneously purchased life insurance from each other.
6. To pay inheritance taxes
Inheritance 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 in large properties and uses permanent insurance (rather than term insurance) to ensure that coverage remains until the end of life.
7. To provide benefits in life
With advances in medicine and rising health care costs, people are living longer, but they cannot afford it. Living benefits are an option to use the proceeds of death before the insured 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 (that is, 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 afford annual premiums for that amount. In other words, insurance replaces income that you did not have the opportunity to earn by living and working until your retirement due to an early death.
The proper amount of insurance allows your family to continue your lifestyle, even if your income is no longer available. The actual amount you must buy depends on your current and likely future income, any special circumstances affecting you or your family, and your current premium budget.
For life or term?
Some people prefer to drive a Cadillac, Lincoln, or Rolls Royce, which come with all the electronic devices that make driving as safe and easy as possible. Others prefer less personalized brands, equally reliable as their more expensive cousins, but requiring more practical attention.
Whole 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 does not increase as you age. The investment property of 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 for whole life without the investment component, but your premiums will increase (often substantially) after the term expires.
Both types of life, term or whole life insurance (or one of its derivatives) have benefits and drawbacks; Both have their place depending on the buyer’s needs, wants, and financial goals. A trained 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-term 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. These naysayers liken life insurance protection to gambling and forego protection entirely.
There are others who believe that life insurance does not help them. For those people, the answer is: You are absolutely right! The truth of the matter is that life insurance is a way that caring and responsible people help ensure that your family can keep moving forward in the event of your untimely death, a truly difficult time of loss. Of course, there is no bet: you will die, but no one 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?