When it comes to life insurance for many people its not the question of How Much, but the question of WHY? The state of Arizona is making me buy auto insurance for our cars. My bank said I need home insurance for the mortgage...WHY do I need to spend more money for something that is not required?
Many financial experts consider life insurance to be the cornerstone of sound financial planning.
Where auto and home insurance protects your "stuff" and liabilities. Life insurance protects the people that rely on you the most. Life insurance can form a vital part of your family’s financial stability and well-being but, if you’re like most people, you may find the thought of shopping for the right type of coverage a little daunting.
“In 2015, approximately 30% of Americans say that they need more life insurance coverage – that’s approximately 70 million people.”
Life Insurance and Market Research Association (LIMRA), 2015
It can be an important tool in the following situations:
If people depend on your income, life insurance can replace that income for them if you die. The most commonly recognized case of this is parents with young children. However, it can also apply to couples in which the survivor would be financially stricken by the income lost through the death of a partner, and to dependent adults, such as parents, siblings or adult children who continue to rely on you financially. Insurance to replace your income can be especially useful if the government- or employer-sponsored benefits of your surviving spouse or domestic partner will be reduced after your death.
Life insurance can pay your funeral and burial costs, probate and other estate administration costs, debts and medical expenses not covered by health insurance.
Even if you have no other assets to pass to your heirs, you can create an inheritance by buying 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 take a smaller inheritance. Changes in the federal “death” tax rules between now and January 1, 2011 will likely lessen the impact of this tax on some people, 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 the 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).
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