Life insurance policies can be purchased from insurance providers. The policyholder pays a premium each month and in return the insurance company will pay out the predetermined sum of money to the beneficiary in the event of the insured’s death. In the US alone, almost 28 million life insurance policies were purchased in 2018, per statistica.com. Life insurance policies can be purchased for almost any amount and the death benefit payment amount, along with other factors, determines the premium paid each month. The specifics of your life insurance policy are agreed upon by you and the insurance company and become a legally binding contract.
If a $100,000 life insurance policy is purchased and the purchaser designates their spouse as the beneficiary, upon their death, their spouse will receive a payment of $100,000 from the insurance company. The policy must be in effect and up-to-date on payments in order for the death benefit payment to be made.
There are two types of life insurance policies. The first type of policy is called a term life insurance policy and is in effect for a set number of years. The second is called a permanent life insurance policy and is in effect for the life of the insured. There are positives and negatives for both types of policies, and you should take the time to research and decide which type of policy is right for you.
Keep reading for the 10 reasons why you should consider purchasing a life insurance policy.
10. Peace of Mind
Having a life insurance policy can give you great peace of mind, especially if you are the main source of income for your family. If your death could possibly cause great financial burdens for your family, this can be a stressful thought. Having a life insurance policy in place can help ease your worries about what could happen to your dependents when you pass away. It can also reduce financial stressors in the present, as you will not have to focus on building up financial wealth and saving money for after you are gone. Life can be stressful enough without these worries.
9. Funeral Expenses
Even if you are not the main source of income for your family, death comes with a number of expenses that many fail to plan for. Funerals can be very costly, and if you do not have financial reserves, those costs fall on loved ones. Having a life insurance policy, even a modest one, can ensure that your family is not laden with financial stress while they are grieving. The average funeral can cost between $5,000 and $10,000 for embalming, viewing, burial services, etc. Having a policy that will cover these expenses will put your mind at ease.
8. Discounted Policies When You Buy Early
The younger you are when you purchase your life insurance policy, the less expensive it will be. Policyholders can save quite a bit of money over the life of their policy by purchasing a plan when they are younger because they are considered lower risk for the insurance company. Insurance companies use age and general health as major factors to determine premium amounts for each policy. Therefore, the younger and healthier you are, the lower your premium will be. If insurance companies see you as a higher risk policyholder with existing health concerns or advanced age, the premiums will be higher. This is why it is important to purchase a policy sooner rather than later.
7. Income Replacement
If you and your partner/spouse both work and contribute income to the household, your death could be financially devastating to your partner. In this case, a life insurance policy can provide the income that will be eliminated upon your death and allow your partner or spouse time to make changes that will allow them to live on their income alone. In this case, your partner may need to downsize the home and reduce expenses, but the death benefit from your insurance policy ensures that they will not have to do so in a rushed and stressful manner.
6. Provide for Children
If you are a parent, you know the high cost associated each year with raising a child. These costs last into adulthood, and failing to plan ahead in the case of death can drastically affect your children for years. In some cases, savings and other financial planning can provide for your children until they become adults, but an insurance policy will still assist them when they are older and help them with their futures as well.
5. Eliminate Debt
Most, if not all, households in the US have some amount of debt. In the event of your death, your spouse will be responsible for those debts, and if they do not have the income or financial stability to pay them, it can be devastating. Knowing that your family will not be struggling to pay any debts can reduce worries. This is another important reason you should consider purchasing a life insurance policy.
4. Payment of Estate Taxes
The federal and/or state taxes on your estate can be quite significant based on the assessment of your estate at the time of your passing. If you take into account these taxes, you can ensure that your insurance policy can cover the amount and your estate will be passed to your children or other beneficiaries clear of these taxes.
3. Business Partnerships
Having a business in which you have a partner is also an important reason to consider life insurance. When you die, your business partner could be saddled with the entirety of any joint debts the business has at the time. If each partner purchases a policy, this can be avoided. The death benefit of the policy should be enough to purchase the shares of the company left behind and can allow the partner to pay off debts without struggling.
2. Mortgage Payoff
Your mortgage is probably the biggest debt you can leave to your family when you die. Just because you are no longer living doesn’t mean that your mortgage payments go away. If you do not have a life insurance policy that can cover the remainder or a large part of the mortgage for a period of time, your family may be forced to sell the home. The home could even go into foreclosure if there are not enough financial assets to cover the payments until other arrangements can be made. In the case of your mortgage, you can even purchase a separate mortgage life insurance policy for relatively low cost that is specifically allocated to paying off your mortgage when you pass away.
1. Build Cash Value
The final reason you may want to invest in a life insurance policy is to be able to leave a considerable amount of wealth to your loved ones when you pass away. This can be for a multitude of reasons, but overall the death benefit can provide for your family, cover final death costs, and leave a considerable financial cushion that can benefit loved ones for years to come.
In closing, there are many reasons why you may want to explore options for life insurance. It is important to research policies and discuss with your spouse, children, or business partner what financial support would be most helpful in the event of your death. Many people avoid the topic of death, and rightfully so. It can be a very emotional topic; however, it is important to plan for in order to give you peace of mind and ensure that your loved ones are provided for when you are no longer living.