You have probably heard of life insurance. Maybe your mom or significant other urged you to get it. You may even have life insurance already, or be in the market for a policy. But do you know what life insurance actually is and how it can help your loved ones?
Consider those who would suffer financially without you if you were to die unexpectedly if you were to put off purchasing life insurance. Life insurance is a crucial (and frequently surprisingly affordable) part of any sound financial strategy, allowing you to provide for and protect your loved ones financially in the event of your death.You need to plan ahead financially if you want to achieve your goals at any age. Consider some of your most important financial goals, such as saving for a down payment on a home, putting your kids through college, or retiring comfortably.
Life insurance can shield your loved ones from financial hardship in the event of your untimely death as you work toward these goals. In the event of your untimely passing, your loved ones will receive a lump sum of money, free of federal income taxes, from your policy. It can be used to meet regular costs, reduce stress, and put toward the joint goals you’ve set.
Despite its usefulness in a time of crisis, life insurance is frequently misunderstood. According to LIMRA’s annual study in 2021, roughly 65% of uninsured people report that not knowing how much insurance they need or what type to buy has prevented them from obtaining coverage. Only about half of all adults have any kind of life insurance, and this lack of trust is likely a contributing factor.
Do not let ignorance prevent you from providing for your family’s future. The first step in providing security for your loved ones is to learn more about lifeinsurance and why it’s important.
Here Are the Top 10 Causes for Considering Life Coverage
If you’re wondering why you need life insurance, let me explain. The primary goal of life insurance is to provide financial security for one’s loved ones and/or charitable causes after one’s passing. It’s up to you and your unique circumstances to determine the best kind of life insurance to purchase and the reasons why you should.
A young working mother, for instance, might purchase term life insurance, the cheapest kind of life insurance, to help her family replace her income in the event of her untimely death. A man in his sixties, on the other hand, might consider purchasing a modest final expense policy to pay for his burial costs.
Here are some of the most common scenarios in which life insurance proves useful.
1. Hopefully, this will help your loved ones relax.
When purchasing life insurance, keep in mind that it is not for you, but for them. Imagine what would happen to your loved ones if you were to pass away tomorrow, next month, or next year. If money were tight, what would you do as a family to ensure that everyone was taken care of? According to the 2020 LIMRA study, one in four people would feel the financial effects within a month if the primary wage earner in their household died.
Coverage amounts for life insurance policies can be anywhere from a few thousand dollars to more than $2 million. If you pass away while the policy is still in effect, the payout will be made to your beneficiary. You can designate a loved one, child, or other family member as the recipient of the payout (called a “beneficiary”). You have the flexibility to name multiple beneficiaries and revise your designation whenever circumstances warrant. Having life insurance can ease your mind and that of your beneficiary by providing for some of the more common needs listed below.
2. To Pay Daily Bills
The cost of living, such as rent, food, and transportation, can be overwhelming for a family left behind. 63% of respondents in the LIMRA study of 2021 said they had purchased life insurance to replace income.
Contemplate how much you can buy with your monthly income. Without your regular paycheck, your loved ones would have to find other ways to make ends meet. When you pass away, your loved ones will need financial support, and life insurance can provide it much more quickly than the probate process can.
3. To Save the Family Home
The importance of your home to your family cannot be overstated. It’s where you teach your kids to ride bikes, where you bring them home from the hospital for the first time, and where you make lifelong memories. It’s also the most costly item for most families. Around $1,100 is the average monthly mortgage payment in the US. That’s a significant cost that your loved ones will have to shoulder in your absence.
If you have life insurance, your family may be able to keep their home and continue paying the mortgage even if you pass away unexpectedly. In fact, it’s common for people to get term life insurance policies whose terms are the same as their mortgage. If you’re planning on keeping your mortgage loan for the full 30 years, the longest policy term you can get is probably 30 years.
When you pass away, your loved ones may be left with a variety of financial obligations that could be made easier to manage with the help of a life insurance payout. That includes credit card balances, car loans, and student loans for which you are a co-signer. Don’t let the thought of paying off a mortgage or other debt prevent you from purchasing life insurance. It’s a smart move that can help your loved ones avoid financial hardship in the event of your untimely death.
4. To Pay for Your Child’s Education
An increasing fraction of the population is earning a degree. In fact, currently 39% of millennials, 29% of Gen Xers, and 25% of baby boomers all have college degrees. College tuition and fees, on average, are also increasing rapidly. As of 2015, the average annual cost of tuition and fees to attend a public university was around $11,000 for in-state students, $27,000 for out-of-state students, and $41,000 for private institutions. It’s important to remember that additional expenses like room and board can significantly affect these totals.
Having a plan to pay for your child’s college education is essential if that is in their future. Even if higher education isn’t in the cards for your kid, they may still want to take advantage of programs like these.
Life insurance provides you with a safety net to help safeguard your goals and aspirations. Think about how many children you have and how much they will each likely spend on college tuition when deciding how much insurance to purchase. Depending on the type of institution, you may need to budget more.
5. To Protect Your Business
There are roughly 30 million small business owners in the United States, and they employ nearly half of all working Americans (47.5%). The wealth you create in a business can be passed on to future generations.
The business you’ve worked so hard to build may not survive your untimely death if you don’t have life insurance. When compared to the cost of a loan from a financial institution, the payout from a policy is preferable because it can be used to cover immediate expenses such as payroll, stock, and more.
As part of your business arrangement, it is common practice to name a business partner as the beneficiary on your life insurance policy. This can strengthen both of your families’ financial positions. Consult your tax advisor if you intend to purchase a policy for business purposes as you may be eligible for tax deductions.
6. To Secure Your Retirement
For many years, this has been your dream, and you’ve been saving up for it. For many people, saving for retirement is a long-term and substantial priority. If you were to pass away just before retirement, life insurance could ensure that your spouse would be able to live out the years of happiness you had planned for them. This is why, as stated by the LIMRA study of 2021, roughly 30% of people invest in life insurance in order to supplement their retirement income.
Life insurance can contribute to your retirement in a number of ways, not just the guaranteed death benefit:
- If you are still alive and something unforeseen happens during retirement, a life insurance rider can provide a payout. If you’ve been diagnosed with a terminal illness, the accelerated benefit rider may pay out some of your benefit sooner than expected. This can ease the burden on your loved ones’ finances while you enjoy your golden years.
- A permanent life insurance policy not only protects your loved ones financially but also accumulates cash value that can be drawn upon in old age. You should know that your death benefit will be reduced if you borrow money from your policy and don’t pay it back.
7. The Goal: To Guarantee a Lifetime Income Stream
As was previously mentioned, permanent life insurance policies can serve as a source of income both during and after your lifetime. As long as you keep up with your premium payments, your permanent life insurance policy will remain in effect for the rest of your life and even grow in value. It can be used as collateral for a loan or as a source of tax-free borrowing. That sum of money can be used for a wide variety of long-term goals, from paying for a child’s college education to making necessary repairs to your home to taking an extended vacation. It’s yours to use however you like.
8. To Cover End-of-Life Expenses
It’s an unpleasant topic to consider, but it’s crucial to budget for. Funerals cost more than $9,000 on average, and the costs of medical care and residential care can add even more to the burden placed on a person’s loved ones.
Having life insurance can ease the financial burden of final expenses. A policy for covering funeral costs is specifically designed for this scenario. Final expense policies are typically inexpensive because the death benefit is low, usually between $20,000 and $35,000. There’s also no red tape to jump through or medical exams to worry about before you can get started.
9. To Leave an Inheritance
Do you hope to provide your children or grandchildren with a means to achieve their own financial security? Purchasing a life insurance policy is a simple and low-cost option. A charity is just one example of an institution that could benefit from a bequest. Depending on the specifics, there may be tax benefits as well. You should consult a tax expert to learn how to get the most out of your tax deductions.
10. So That You Can Have Greater Influence Over Your Family’s Financial Future
Life insurance is a wise investment for many reasons, and it’s worth noting that there are no conditions attached to receiving a payout. The payout is typically tax-free, so your loved ones can use the money however they like. All families have different wants and aspirations. In the end, life insurance gives your loved ones choices, the same choices you would have worked hard to give them if you were still around. Use our term life insurance calculator to get an estimate of how much coverage you might need if something were to happen to you and your loved ones.
False beliefs about life insurance are a major deterrent to potential buyers.
If you recognize the significance of life insurance but have yet to take action, you should start now. There has never been a higher level of interest in purchasing life insurance: According to LIMRA, roughly 70% of respondents feel the same way.
However, some people may be hesitant to purchase coverage because of myths they may have heard. These false beliefs should not stop you from keeping your loved ones safe.
- It’s too expensive. The average person’s estimation of the cost of life insurance is about three times higher than the real figure. In fact, 44% of today’s youth estimate that life insurance costs five times as much per year as it does. Life insurance for a healthy 30-year-old woman can be purchased for as little as $15 per month (the cost of a few coffees). The policy will cover her and her dependents for a decade and will be worth $250,000 at the end of that time. Term life insurance, in particular, is surprisingly cheap. Because it only provides protection for a set time frame and does not accumulate cash value, term life insurance is more affordable than permanent policies. For those who only require security during their formative years, this sacrifice is acceptable.
- It’s better to put it in savings. Having a nest egg is crucial. Financial experts acknowledge, however, that most people will never be able to save enough to ensure their families’ security in the long term. A life insurance policy allows you to invest a small amount of money each month in exchange for a large payout in the event of your death. For a healthy 30-year-old, a term life plan can provide a death benefit of hundreds of thousands of dollars, and even millions of dollars, for as little as $15 per month.
- I already have it through my employer.When it comes to life insurance, relying solely on your employer can lead to a number of problems. Most companies, for instance, won’t let you take your insurance with you if you decide to change jobs. Employer-provided plans typically only go up to three or four times your salary, so you’re probably not getting enough coverage there, either. Whether or not you qualify for group life insurance may also depend on your health. It may be more challenging to obtain individual coverage in the future if you develop a medical condition.
- I’m too busy to get covered.. You might think that getting life insurance requires a personal visit to an agent and a few weeks of waiting while they go through the underwriting process. Now, the time it takes to get life insurance coverage is less than the time it takes to watch an episode of your favorite Netflix show. You can buy life insurance from Fidelity Life either over the phone or on their website. To speed things up even more, consider adopting these practices.