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Whenever you buy something, you must weigh the cost of the product with the value it presents. If you feel like the cost of the item outweighs what you get in exchange for your money, then you must decide if it is best to make the purchase. This is especially true when you are buying a financial product like life insurance. Life insurance is a form of financial protection that helps your family, business partners or other beneficiaries live comfortable long after you are gone. It is not just a form of financial security that offers protection against loss of income, but also a safeguard that maintains a standard of living for the people that you love the most. Start comparing life insurance rates now by using our FREE tool above!
While it might sound like a given that you need to buy at least a minimal amount of insurance, not everyone has the same financial situation or the same long-term goals.
You need to consider not just your personal budget, but how you intend for life insurance to be used before you can place worth on the product and weigh it against value. If you are trying to justify the cost of life insurance, read on and find out some of the main reasons why people buy coverage today. After you learn about how life insurance can be used as a tool, you can decide if the cost is justified.
What are the most common uses for life insurance?
There are common uses for life insurance, and then there are also uses that you may have never thought of. It is important to know all of these if you are simply not sure that you need the product. Here is a list of some of the scenarios where life insurance is used in a multitude of ways:
- Income Replacement
Does anyone depend on your income? If you have a spouse, a partner, children, or even elderly parents who are dependent on your salary to pay the bills and survive, you have a need for income replacement. If you want to give your dependents time to find another source of income, or you want to provide a steady stream of income for life, life insurance is a great tool that provides that stream for as long as you want.
- Final Expenses
Seniors still have a need for life insurance, even if they have paid off their mortgage or are retired. The cost of burial or other funeral expenses has gone up, and social security only pays for $255 of funeral costs. If you are not the type of person who wants to place the burden of covering the costs on to your family members, buying a small life insurance policy that strictly covers final expenses is wise. These final expense policies are typically inexpensive and require little underwriting, which make them a great choice for those with medical conditions.
- Mortgage and Debt Protection
The average person accrues a great amount of debt in their lifetime. If you pass away and have not properly planned, mortgage debt and even other types of debt can be passed on to your loved ones. You can use life insurance to pay off the balance of your mortgage or the balance of your loans and revolving lines of credit so that your family is not left trying to sell the property or trying to fight with creditors well after you are gone.
- Pass on an Inheritance
Leaving a legacy may be your main goal. If you want to leave an inheritance to your loved ones to your heirs and you have no other assets, you can buy insurance and then name the people that you want to receive the benefits as your beneficiaries.
- Paying for Estate Taxes
Just because you have accrued wealth does not mean that you want your wealth to go to the government. If your estate is taxable at the time of your death, a big portion of its value will go towards paying taxes. Instead of being oblivious to the tax implications of having a large estate, it is best to include life insurance in your estate planning. You can buy permanent life insurance that will make your estate liquid and also give your heirs the funds they need immediately to pay the estate taxes and keep your estate out of probate. Even the wealthy have a need for life insurance to protect their wealth.
- Accumulating Savings
Some policies do not just offer a death benefit, but also a living benefit. If you want a death benefit and want access to money while you are living, you can buy a cash value permanent life insurance policy. These policies offer a death benefit and also allow the insured to borrow against money that accumulates in a savings component. Permanent plans tend to be more expensive, but they are beneficial if you want a source of savings and a form of protection at the same time.
- Donate to Charitable Causes
If there is a charity that you would love to donate to, you can list the charity as your beneficiary and they will receive your death benefit in your name. You can help others and pass on a legacy while doing so if you plan ahead.
- Protect a Key Person
What would you do if your business partner or an expert you employ were to pass away? Replacing this person is not as easy as recruiting for regular staff. You can buy key person life insurance, which will help you maintain your profits while you are looking for someone to replace the key employee or partner.
- Business Continuation
You might love your business partner’s family, but the idea of being in business with his or her spouse if they pass away sounds like a nightmare. With life insurance, you can fund a buy/sell agreement so that you have peace of mind that you will be able to buy the interest in the business. This eliminates hassles in the future and can even save your sanity if you are stuck in business with someone who has a different vision after your partner passes.
Why do so many people decide to plan with life insurance?
Now that you know what you can use both term and permanent life insurance policies for, you might be wondering why life insurance tends to be a more popular choice than investing or putting money away in a savings vehicle. There is a lot of reasons why the potential payoff that you receive from life insurance proceeds is worth the money that you pay in premiums. Here are some of the main reasons why buying a life insurance policy tends to be the ideal choice:
- Planning for Risk
Your savings will not be enough to replace income or pay off debt if you do not have time to save. There is always a risk present that you will die, and while you do not expect to die today life insurance is a product that will offer protection just in case you do.
By paying for life insurance, you are making an agreement that the company will be there when your family needs them the most.
There is a possibility that you could get injured in an accident, fall ill or just so happen to be in the wrong place at the wrong time. You do not want to bet against yourself, but you also do not want to gamble with your families well being. It is still a gamble, but many are willing to pay because the risk is present and death is one thing in life that is inevitable.
- Paying for Peace of Mind
When you buy life insurance you are reducing or even eliminating risks. You may pass away, but the risks that could lead to a diminished quality of life for your family will be erased because of the policy that you decided to purchase. Knowing that these risks are erased for a specified period of time or for your entire life could be enough to justify paying the cost. If your peace of mind is worth the cost of buying insurance at your current age, then answering the question “Is life insurance worth it?” is an easy one.
Are you still debating whether or not you need to buy life insurance coverage? If you are, the next thing to do is to review the cost of coverage by comparison shopping. You can easily price shop by using an online rating system and see how much you would be charged for small and larger death benefits. After you see what insurers in the industry with good reputations would charge, you can weigh the value and the cost against one another. When you get a look at the big picture, you may find that life insurance is much more valuable than you thought. Start comparing life insurance rates now by entering your zip code in our FREE tool below!