Why life Insurance is Important
emotional pain, causes financial difficulties. Life insurance can help with financial consequences. Why life Insurance is Important.
Although we may not want to think about death, it is a reality for everyone. And sometimes it's too early, which, in addition to emotional pain, causes financial difficulties. Life insurance can help with financial consequences. Why life Insurance is Important.
- How life insurance works
- Why life insurance is important
- To protect dependents
- Pay the funeral expenses
- To repay debts
- To protect your business
- Why buy life insurance if you are young and healthy
- How much do you need to insure your life for survivor
- When you don't need life insurance
- Key takeaway
Although we may not want to think about death, it is a reality for everyone. And sometimes it's too early, which, in addition to emotional pain, causes financial difficulties. Life insurance can help with the financial consequences of death, but people often do not understand how it works and how much it costs.
How life insurance works
Life insurance provides a large benefit to beneficiaries when the insured person dies. The payout can be hundreds of thousands of dollars (or more), and that money is often exempt from federal income taxes. To get coverage, you apply, which usually involves answering a health question and may include a brief medical examination. Then, if approved, you pay premiums to the insurance company in exchange for coverage.
Some forms of life insurance, such as life insurance with a guaranteed issue, do not require a medical examination or health issues.
Life insurance comes in several types; You can classify them as a whole as term insurance and permanent insurance, or cash value. Urgent insurance is the simplest and least expensive form of life insurance, and is a great choice for most families who are protected from the untimely death of a family member. With term insurance, you choose a term (for example, 20 or 30 years), and the insurance coverage ends after that time.
Why life insurance is important
Life insurance provides much-needed funding when a tragedy occurs, and underinsurance can be extremely risky. Some of the most common reasons for life insurance include the following.
To protect dependents
If your spouse, children or other loved ones depend on you, chances are you need life insurance. If you hire a family, your death would leave dependents without a vital source of income. The result can be a domino effect of financial difficulties that last for years. This is because lost income makes it difficult to save for purposes such as education, which can mean that children enter the workforce with a large student debt. It is much more difficult to save for retirement if the wife or partner has to support the family on their own.
Even if a family member does not receive an income, their death can have significant financial consequences. For example, the loss of foster parents may require surviving parents to hire others to care for, spend more time on household chores, or quit work altogether.
Pay the funeral expenses
When someone dies, there may be several costs associated with their death. In addition to any medical bills, you may incur final expenses, such as paying for a funeral, memorial, cremation, and so on. This can be a significant and unexpected expense for those who are coping with the loss of a loved one. Life insurance can help cover these costs and ensure that survivors erect a memorial that is meaningful to them.
To repay debts
Life insurance proceeds can pay off debts that could otherwise put your loved ones in a difficult position. Debt relief provides significant relief if household incomes decrease or expenditures increase due to care needs. Even if you do not have family members dependent on you, the person who signed the loan will be responsible for your debts. Life insurance can prevent their good deeds from becoming a burden.
Debt repayment after death is difficult. Depending on state law and the method of borrowing, the survivor may be responsible for your debt. Contact a licensed attorney in your state to find out what to expect after death and how best to prepare for it.
To protect your business
The death of a key employee or business owner can cause financial problems for your business, which is why many organizations use life insurance to manage risk. If the person who dies is responsible for business development,
sales could fall sharply after their death. Or, if you need to quickly hire help to perform a critical role, you may need cash to pay recruiters, a signing bonus, and the first few months of salary.
Although life insurance for a key person is a cost to your business, it cannot be deducted. Talk to your CPA before making a decision or expecting a deduction.
Why buy life insurance if you are young and healthy
If you are not worried about death - and no one is financially dependent on you - it may still make sense to buy life insurance. The cost of insurance increases as you get older, so blocking a low rate can be helpful. As you know, the older you get, the more you pay for insurance.
Expectation can also be problematic if you develop health problems (or previously unknown problems) with age. Insurance companies charge higher rates or refuse coverage if you have certain conditions, so shopping when you are young and healthy can help you avoid these problems.
How much do you need to insure your life for survivor ?
It is impossible to know exactly how much money the survivors will need. One way to achieve a reasonable estimate is to determine the costs that your dependents will have to pay and for how long.
Survivors, among other expenses, need to pay for housing and food, and it is a pleasure to include a budget for "desires" as well as for these needs. Ideally, the funds should also help loved ones save for financial purposes, such as retirement or education. And it can be helpful to repay debts (such as mortgages, car loans, and student debt) or provide enough money for monthly payments over a long period of time.
A simplified approach is to use a multiple of your salary. For example, you can purchase a death benefit equal to 10 years of your annual salary and add $ 100,000 to the cost of each child's education. This method can ignore important issues, but it is a popular way to assess insurance needs, and it is probably better than doing nothing.
When you don't need life insurance
Some people do not need life insurance. If your death does not cause anyone financial difficulties, you may not need coverage. For example, this may be the case if your children are adults and self-sufficient, and you have accumulated more than enough assets to provide for the surviving spouse and all those who depend on you.
However, most people are not financially independent. If you have a family - especially a young or growing family - it is wise to consider your options before excluding life insurance. The risk of leaving someone in prison is too great, and the results can be devastating.
Key takeaway
L I can provide a significant benefit when an insured person dies.
L I income is not taxed and can repay debts, replace income and cover final expenses.
L I insurance costs are lowest when you are young and healthy.
It is advisable to think about who may suffer materially (and what resources can help them) after death.
