Life Insurance is not a topic most people want to discuss.
Perhaps because, like most insurances, we hope it won't ever be necessary. What we need to remember however is that life insurance, unlike other insurance policies we purchase, is not for our own benefit but for the benefit of others, usually our loved ones.
Considering whether a life insurance policy should be a part of your financial package requires looking at several factors. Quite simply, if loved ones count on your earnings, life insurance can replace that income for them if you die.
Most often we associate this with parents protecting their young children. However it can also apply to couples where the survivor would be financially stricken by the loss of the other person. This can include dependent adults such as parents, older siblings or adult children who depend upon you financially. Insurance to replace your income can be especially useful if the government or employer sponsored benefits are reduced for a surviving spouse or domestic partner upon your death.
Life insurance can also come in handy for paying for funeral and burial costs, probate and other estate administration costs, debts and even medical bills not covered by health insurance. Even if you have no other assets to pass to your heirs, you can create an inheritance by purchasing a life insurance policy and naming them as beneficiaries. Life insurance benefits can pay estate taxes so that your heirs will not have to liquidate other assets or receive a smaller inheritance.
Changes in the federal “death” tax rules may impact this tax on some individuals, but some states are offsetting those federal decreases with increases in their state-level “death” taxes. By making a charity the beneficiary of your life insurance, you can make a much larger contribution than if you donated the cash equivalent of the policy’s premiums.
Some types of life insurance create a cash value that, if not paid out as a death benefit, can be borrowed or withdrawn on their owner’s request. Since most people make paying their life insurance policy premiums a high priority, buying a cash-value type policy can create a kind of “forced” savings plan. Furthermore, the interest credited is tax deferred (and tax exempt if the money is paid as a death claim). Nearly every business has key employees who are critical to the overall success and profitability of the business. A business can purchase key employee life insurance which can offset economical loss should an important employee die unexpectedly.
So while many people believe that purchasing life insurance is important only when their children are young, there are many more reasons to continue or add life insurance even as children age. Consider all the economic factors involved when making a decision on purchasing life insurance.
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