You may wonder why you should buy life insurance. Many individuals think they do not have enough assets to need it, others simply avoid it because they do not like to think about mortality (death). In this article, we will go over 5 reasons why you need life insurance.
1. Protection for Your Loved Ones
Life insurance is a great way to protect your loved ones. It is an easy source of funds to replace your income when you pass. This is especially important when you have young children to provide for. Even if you are not the main breadwinner, you also need to consider the need to replace the value of services you provide. This would include such things as childcare and household chores.
2. Leave an Inheritance
Life insurance can allow you to leave extra money for your children or other loved ones. This is the case even if you do not have a large estate or substantial assets. It can also be a useful tool if your estate is over the Estate Tax Exclusion, life insurance is often used to pay the 40% Estate Tax that may be due at your death, it is even more useful when the inheritance is largely valued with illiquid assets such as a business or real property.
3. Pay Off Debts and Expenses
In addition to replacing your income, your life insurance policy should also cover your outstanding debts. This would include such things as your mortgage, credit cards, car loans, and other loans. You may also want to ensure that it is enough to cover your funeral and burial costs. By paying off these debts and expenses you can provide your family with more security and stability in the case of your death.
4. Enhance Financial Security
Life insurance can also help to enhance your family’s financial security, leaving them money for extra endeavors. It can provide money for your children’s education. Or it can help pay for a wedding or help them to start a business. The opportunities are endless.
5. When You Own a Business
Life insurance is also important when you own a business. It can help to pay the salary of someone to replace you. It also can help to keep your business afloat in the transitional time after you pass. Additionally, it can pay off liabilities that your business may have. Life insurance should be part of any business succession plan.
How Much Do You Need?
How large of a life insurance policy you need is dependent on many factors. You need to consider your gender, age, health, and income. You also need to factor in the size of your family and the level of debt that you carry. Many will tell you that your policy should be somewhere between 7 and 10 times your current annual income. The best way to be sure is to meet with a financial planner who can take all aspects of your financial situation into account and help you come up with the correct policy amount for your situation.
Purchasing a Policy
Now that you understand why you need life insurance, the next step is to start shopping for a policy. Meet with a financial advisor who can help you decide on your policy amount and shop all the top insurance companies for the best price.
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