8 Reasons Why Life Insurance is Important
1. Paying Off Debts
Life insurance may provide a financial safety net for loved ones left holding the bag on paying off debts. For some, it could prevent certain scenarios, such as needing to sell the family home to balance the debt books in the wake of a death.
2. Giving Loved Ones a Financial Future
Life insurance can help fill the income gap (and supplement added expenses) when one parent or the primary family breadwinner passes away. A death benefit could be used to cover day-to-day purchases and living expenses, such as groceries, utilities, and car payments.
Other dependents, such as aging relatives or children with special needs, may need long-term care that can be covered by life insurance benefits, when an eligible policyholder passes away.
3. Leaving an Inheritance
Life insurance is one method to create an inheritance that, usually, is not taxed before reaching heirs or beneficiaries. (There are exceptions here, including when interest is received and when the beneficiary is certain types of estates. Check the IRS for more details ).
Policyholders can name multiple beneficiaries and how the inheritance should be allocated between them. For example, the death benefits could be split evenly between surviving children or a portion could be directed to a charity or nonprofit organization.
Additionally, contingent beneficiaries can be named to receive the death benefits if a primary beneficiary passes away or is unable to claim them.
4. Providing Extra Support Through Retirement
Many people only associate life insurance with death, but the right policy can also fit into the mix for retirement planning. Permanent and whole life insurance last the policyholder’s lifetime and often incorporate a “savings” component, known as cash value.
With such policies, the cash value can be withdrawn or taken as a loan to supplement income during retirement or be put towards long-term care services.
5. Protecting a Business
A business owner may also use certain types of life insurance policy to borrow money against. Keep in mind that only whole or permanent life insurance policies are eligible for cash value accrual.
These types of policies generally carry higher premiums. But, because policyholders pay a greater amount than the death benefit, the insurance company can accumulate cash value. (Some policies may guarantee a specific cash growth amount, while others tie the cash value to current interest rates or invest in subaccounts).
6. Handling End-of-Life Expenses
Including end-of-life expenses in a life insurance policy could spare loved ones more money and heartache. Costs vary between funeral homes and geographic areas, but it’s not uncommon in the US to pay between $7,000 to $10,000 for a funeral service, burial, and headstone.
Informing chosen beneficiaries that they’re designated on a policy can help the life insurance claims process run more smoothly. They’ll need a certified copy of the death certificate to then submit the requisite paperwork.
7. Preparing for the Unexpected
While various types of insurance can protect and compensate for damage to your valuables and home, there is no price that can be put on someone’s life. Still, death is one of life’s certainties. And, life insurance is one tool for having a financial plan in place when death comes.
An applicant’s health and age can factor (among various considerations) into the pricing of life insurance premiums. Thus, waiting until a serious illness arises may inhibit securing a favorable life insurance plan, or one at all.
8. Offering Confidence
While planning in advances for one’s own death may feel a little morbid, making a plan for what would happen after a sudden death can give some individuals peace of mind that their loved ones will be taken care of.