Do you worry about your family’s source of income if, God forbid, something happens to you? Helping to replace lost income is just one of the reasons why having a life insurance policy can be substantial. Read this article to know more about why you ought to get life insurance coverage.
You must have heard about life insurance. Your partner or your mom might have suggested you buy it. But you may not have given it a thought yet. Reasons to buy insurance are different for everyone. But the decision to purchase insurance is, at its core, all about providing financial security for yourself and the ones you care about. Reaching your goals at every stage of life comes with some financial prep. Think about your most significant financial dreams, like buying a house, sending your kids to college, or planning for retirement.
Purchasing life insurance protects your spouse and children from the potentially devastating financial losses that could result if something happened to you. It provides financial security, helps to pay off debts, helps to pay living expenses, and helps to pay any medical or final expenses.
People often misunderstand life insurance despite all the good it can do for your loved ones if they need it. About 65% of uninsured people say that not knowing how much insurance they need or what type to buy has held them back from getting covered, according to the 2021 annual study from industry group LIMRA. That lack of confidence helps to explain why just 52% of adults own some form of life insurance.
There are several valid reasons why you ought to get life insurance coverage. Therefore you should let a lack of knowledge hold you back from securing your loved one’s future. Continue reading to understand the aspects of life insurance.
What is life insurance?
Life insurance is a contract between you and an insurance company. The insurance company will pay a lump sum known as a death benefit to your beneficiaries after your death in exchange for your premium payments. Your beneficiaries can use the money for whatever purpose they choose. Often this includes paying everyday bills, paying a mortgage, or putting a child through college. Having the safety net of life insurance can ensure that your family can stay in their home and pay for what you planned for.
Each life insurance policy is different, and each state’s laws regulating insurance policies are different. Before purchasing a life insurance policy, you should consult with a life insurance professional. It also may be a good idea to consult with your legal or tax advisor. The information provided below is general guidance only and should not be relied on in connection with any specific policy.
In general, most insurance policies identify the following:
- The insurer: Only certain companies can provide life insurance, and state insurance departments regulate these companies.
- The policyholder: It is the person or entity such as a family trust or a business that owns the policy. The policy can insure the holder, or it can insure another person.
- The insured: The person who gets life insurance.
- The death benefit: The amount the insurer will pay when the insured passes away.
- The beneficiaries: The people or entities that will receive the death benefit. It can all go to a single person, or it can be divided by percentage among many different people and entities, e.g., three children could each get 30% and 10% could go to a charity.
- The policy length: It is the period that the insurer agrees to pay a death benefit. This can be a specific term such as 10 or 20 years, or it can be permanent – a policy that lasts for the insured’s life for as long as premiums are paid.
- The premium: It is the monthly or yearly payments needed to keep the policy in effect.
- The cash value: Permanent life policies, like whole life insurance, have a cash value component that builds over time and can be cashed out or borrowed against. A term policy has no cash value.
Why life insurance is important?
Why is it important to get life insurance? The basic idea behind life insurance is to make sure there’s money left behind after you die to support the people or causes that matter to you. The specific reasons to buy and the best type of life insurance for you depend on your situation.
For example, a young working mom might buy term life insurance, the most affordable type of life insurance, to help her family replace her paycheck in a worst-case scenario. On the other hand, a man in his 60s might buy a small final expense policy to cover his funeral expenses when the time comes. To give you a glimpse of what life insurance can help cover, here are some of the most common reasons to buy.
Once you understand the importance of taking out a life insurance policy, you need to make the right choice. You need to ask yourself about your needs and purchase a product that works for your family and insurance premiums that fit your budget. A financial security advisor can help you with this.
10 reasons to buy life insurance
Here are the ten main reasons that support the importance of life insurance.
1. It can help to protect your family financially
People generally opt to get life insurance out of concern about how their family will manage if something happens to them. Even if you have savings, it’s unlikely that it would be enough to cover your family’s expenses for several years or even decades if something happens to you unexpectedly. Moreover, your loved ones may also have to bear some of your shared responsibilities, such as your credit card fees, lease, car payment, mortgage payment, student debt, or others. If you have children, life insurance will let you replace the lost income from one of the parents to provide for the children’s needs.
You must know there are three main types of life insurance to consider, which caters to different situations and needs of the consumers.
- Term life insurance: This type of life insurance offers coverage for a set period, generally 10, 15, 20 or 30 years. Coverage expires at the end of the term. However, most term life insurance policies also offer optional riders that could allow you to renew or convert your policy.
- Whole life insurance: This type of life insurance does not expire as long as you continue to pay the premiums. It also offers a cash value component that has growth potential. You also can borrow from the cash value. Still, loans or withdrawals may generate an income tax liability, reduce the cash value and death benefit and cause the policy to lapse. The loans are given on an interest basis.
- Universal life insurance: This type of life insurance is similar to whole life insurance because it does not expire as long as you continue to pay the premium. It also has a cash value component. With a universal life policy, you typically have the flexibility to adjust the premium and death benefit. However, the policy must have enough cash value to cover monthly charges if you pay a lower premium than the amount selected or skip a premium payment. Additional premium payments may need to be made to keep the policy in force. Increases in coverage are also subject to underwriting.
2. It can replace lost income
Whether you have a 9-to-5, are self-employed, or own a small business, your income might cover your family’s daily needs. Housing, food, utilities, clothing, car maintenance, and health care premiums are likely part of your monthly budget. Even without your income, your family will still need to cover these expenses. The death benefit from a life insurance policy can help provide the funds your family may need to help cover these expenses.
3. It can help your loved ones pay off debt
Certain types of debt don’t go away when you die, which means your loved ones may have to use money from your estate or sell off other assets to cover them. This could leave less money to pay for expenses. Life insurance can help your loved ones pay for any debt you leave behind, including credit card debt, business debt, personal and educational loans, and mortgage debt. Life insurance can help ease some of the financial burdens they may experience after your passing when your loved ones are already dealing with your loss.
4. Covers your funeral expenses
Funerals can be expensive. Dealing with this financial stress can add to the emotional stress your family might experience. Your family could use some of the death benefits from your life insurance policy to help pay for these costs. The policy’s beneficiary could direct some of the death benefits to the funeral home. They can pay out-of-pocket and use the death benefit to reimburse these expenses.
5. It can help to pay for future education expenses
Life insurance can help your family pay for future childcare and education expenses, especially college if you have children. Even if you’ve already started contributing to specific college savings plans, the death benefit from a life insurance policy can provide additional money to help cover your children’s education if you were to die.
6. Diversify investments
Some people also use life insurance as an investment tool with universal life policies. These policies are tied to a specific investment product. Then policyholders receive dividend payments based on the product’s performance. Before diving into this type of insurance, you would want to read the fine print. You will know the potential risks and returns before you commit.
7. Business planning
If you own a business, you must have life insurance. This covers your obligations, so your hard work doesn’t waste. Are you involved in a partnership with someone else? You should both have coverage. If one of you dies, the other isn’t left holding the heavy financial bag.
8. Estate taxes
When someone passes away, their heirs often face estate and inheritance taxes on any assets they receive. If you’re worried about your loved ones getting hit with a big tax bill, a life insurance policy can help cover these added costs.
9. Affordable coverage
One of the excuses people tend to make for not buying life insurance is the cost. But truthfully, coverage often ends up pretty affordable for most people. Term life tends to be less expensive than whole or universal life. Plus, the younger and healthier you are, the lower your premiums. Unless you smoke or have a preexisting health condition, you could find coverage for as little as $1 a day.
10. Peace of mind
No one can truly predict the future. But having life insurance means you and your loved ones can prepare for any casualty. Even with a small policy, you may find yourself sleeping a little easier at night knowing that your family has protection in place should something happen to you.
10 benefits of insurance
Most people understand the primary benefits of having life insurance: Your family gets the money if you die unexpectedly and you get the reassurance of knowing they will have resources to help carry on without you. While those benefits are generally valid for all kinds of life insurance, there are other important advantages depending on the specific type of policy and the amount of coverage you get.
Here are the 10 essential benefits that you can get from a life insurance policy.
- The obvious and most important benefit of insurance is the payment of losses. An insurance policy is a contract used to indemnify individuals and organizations for covered losses.
- Life insurance has tax benefits because death benefit payouts are generally tax-free. Some policies have features that can help transfer money to heirs with fewer tax liabilities.
- Some policies have a cash value that accumulates over time and can be used to pay premiums later, or even tapped into to help live on in retirement.
- Life insurance can often be bundled with other types of protection, such as disability insurance to replace a portion of your salary if you’re unable to work.
- Many policies have valuable “riders” or contractual provisions that provide benefits before death.
- It helps in managing cash flow uncertainty. Insurance provides payment for covered losses when they occur. Therefore, the uncertainty of paying for losses out-of-pocket is reduced significantly.
- The compliance with legal requirements makes it more genuine. Insurance meets statutory and contractual requirements and provides evidence of financial resources.
- Another significant benefit of insurance is promoting risk control activity. Insurance policies provide incentives to implement a loss control program because of policy requirements and premium savings incentives.
- The important benefit of insurance is support for the insured’s credit. Insurance facilitates loans to individuals and organizations by guaranteeing that the lender will be paid if the collateral for the loan is destroyed or damaged by an insured event. This reduces the lender’s uncertainty of default by the party borrowing funds.
- The buying of life insurance helps reduce the social burden. It helps reduce the burden of uncompensated accident victims and the uncertainty of society.
Should I get life insurance in my 20s?
Buying a life insurance policy may be one of the last things you want to think about in your 20s. But whether you’re paying off student loans or trying to build your financial future, buying life insurance while you’re young may be one of the best financial decisions you can make.
Most young people don’t think about life insurance because many believe it’s something only parents buy to protect their children or make sure the surviving spouse can manage the family’s expenses. Life insurance is cheaper the younger and healthier you are. As you age, health problems are more likely to crop up that could increase the cost of coverage or even make you uninsurable. Is that enough reason to get a policy in your 20s? Maybe yes!
3 reasons to purchase life insurance when you are in your 20s
Following are the three main reasons for which you should purchase life insurance when you are in your 20s.
It can help pay for life’s expenses
The living benefits of a whole life insurance policy can help pay off any student loan debt you may have accumulated. The policy can also cover any other unpaid debts or final expenses should you die unexpectedly.
It can grow wealth over time
Whole life insurance accumulates cash value, which can be used in the future for whatever purpose you desire, like paying for a wedding, helping to pay college tuition, making a down payment on a home, or supplementing retirement income.
The earlier you buy the better
Life insurance purchased today can also protect your future insurability. And the younger and healthier you are when you purchase insurance, the less expensive it will be. Once issued, whole life insurance is in place for life, even if your health changes, assuming that all required premiums are paid when due.
Reasons not to buy life insurance
From getting married to having a baby to starting a business, there are lots of reasons why you’d want to consider buying life insurance. But maybe something is holding you back from getting the coverage you know you need. Here are nine of the biggest reasons you will hear for not buying life insurance and why you shouldn’t let them keep you from considering coverage.
It’s too expensive
Concern over cost is one of the most common reasons people give for forgoing life insurance. And that’s too bad when you consider that most people overestimate the cost of life insurance.
I don’t have any kids
Does your spouse or partner depend on your paycheck to help pay for living expenses? Or do you have a sick parent or relative who would need to hire a caretaker if you weren’t around? These are just a few of the reasons to consider life insurance if you’re childless.
I’m too young and healthy to worry about life insurance
No one is invincible or knows what tomorrow may bring. If anyone depends on you to make ends meet, you will want to consider life insurance. Plus, young and healthy people tend to get great rates and can often lock in coverage in case their health takes a turn for the worse later in life.
I’m too old to need life insurance
We all know age is just a number, and that’s certainly the case when someone would face a financial hit without you in the picture.
Your health isn’t great
There are lots of life insurance options for anyone in less than optimal health, so don’t assume you can’t get coverage if you have diabetes or high blood pressure, for example. The key is typically to have the condition under control with a physician’s guidance and medication if needed.
You don’t have time to get coverage
These days, it’s easy to get a quote online or over the phone and to e-sign the required documents. And there are even policies out there that don’t mandate a medical exam, often called simplified underwriting.
I don’t know what kind of coverage I need or how much
People have one excuse not to buy life insurance: what kind of coverage I need. There are many trusted insurance agents and advisors in your community and online who can help you pinpoint coverage that works for your life and budget.
Life insurance is designed to protect your beneficiaries in the event of your death. The death benefit can help compensate a family for your lifetime income. It can also provide cash to pay any debts or business expenses you leave behind. The basics of life insurance are easy to understand, but it can be difficult to know whether or when you need a policy of your own. It can also be hard to know how much coverage you might need. There are several benefits and reasons to purchase a life insurance policy. Different companies offer various types of plans according to your budget and requirements.