One of the most important areas of financial planning for your family will be insurance. Health insurance, life insurance, home insurance, contents insurance, car insurance, the list does seem to go on and on. Life insurance is one of the most important parts of your planning because it's going to also be something you use when you plan your life together. Most people don't even know why they might need life insurance, they just buy it because other people tell them it's a good idea. In order to figure out how much life insurance you might need, you need to know why you are buying it in the first place.
For example, do you know that there is a difference between key man insurance versus life insurance? If you don't, it's not unusual because most people haven't heard of key man insurance. You need your insurance proceeds to go towards a number of things, and if you put insurance, especially life insurance, as part of your financial obligations, you're going to ensure that everybody around you knows what it's for as well. So, to that end, we've put together a list of reasons why you need life insurance so that you can make more informed and better decisions for you and for your family.
Replacing your income.
If you are the person who earns the most money in your home, insurance is going to be one of the most important things that you have in your arsenal. Should something happen to you, whether it be an accident on the way to work, an accident at work, or something that happens to you in the home, your life insurance could help to pay the bills or pay off the house, or pay for your funeral or offer savings potential when your income doesn't come in. Life insurance doesn't just payout in the event of your death. If something happens to you that means that you can no longer work, then life insurance is going to help you to replace that income and at least give you something to work with while you figure out what's going to happen in the next few years. Income replacement is one of the best reasons to get life insurance because it can make a big difference should something go wrong.
Most people who get life insurance do so so that their families won't have to worry about the cost of their funeral one day. Burial costs and funeral costs can total over $10,000, which means that somebody dying can leave you with a huge financial burden. Unfortunately, there is a business in everything, but life insurance could help to cover or at least subsidize these costs. It can also help with other medical costs that occur towards the end of your life, especially if you have a terminal diagnosis and that is covered in your insurance policy.
Liquidating your estate. Did you know that there are taxes your beneficiary will have to cover in the event of your death and inheritance of your belongings? If they have an estate inherited via your will, they'll have to pay both income taxes and federal estate and state inheritance taxes. Some insurance policies out there can provide some help with this, and you can build that into your life insurance. This way, the person that benefits from your estate after you die won't have to panic that they have to come up with all of this money for taxes when you would have covered that in your life insurance policy in the first place.
The younger you start buying life insurance the better. You can lock in a low premium and not have to worry so much about being covered in your 20s. Your premiums will increase as you age, so the earlier you begin, the better off you will be.
You can transfer family wealth.
If you die earlier than you expect, your life insurance policy can allow you to leave more money for your family as part of the estate. If they benefit from your life insurance policy they will be able to pay down their bills, debts and cover your funeral all in one fell swoop. Making sure that your kids have college covered, your partner has the money to have time off work to grieve, and to ensure that the expenses for the house are covered is a good way to say goodbye.
Your life insurance policy can cover your debts.
Unfortunately, just because you have died it doesn't mean your debts die with you. Life insurance policies can help to pay off a mortgage loan so your beneficiaries will be able to continue to live in their home. Nobody wants to think about having to do a house move when they are grieving somebody that they love, and a life insurance policy will remove the immediate need to sell the home. Some debt can be inherited, and then follow your family around for years. You don't need them to go into foreclosure or declare bankruptcy just because you have died and no longer have your income anymore. If you get your credit score sorted out and checked you'll be able to figure out whether or not any debt will be passed along to your family members.
You can continue your business.
Business succession is a big deal and the continuity of a family business can be covered in your life insurance. You can protect your descendants at your business by ensuring that you have a life insurance policy that provides you with the coverage you need. Your business can continue and you get everything you need with the right life insurance policy. There are also tax benefits that will be great assets for the high income earners and policies can provide the tax shelter that you may need. It’s a good alternative to IRA options out there.