Why do I need life insurance?
Answer:
Life insurance has several purposes. Its most important function is to replace the earnings that would cease at the death of the insured. For businesses, life insurance is a way to protect key employees and the business itself. A third purpose is to pay potential estate taxes.
Protecting your family
If you die during your earning years, your family could face severe financial hardship from the loss of your current and future income. They would still need to pay regular bills, cover the mortgage and outstanding debts, and possibly continue saving for college or retirement.
Unless you are independently wealthy, achieving these financial goals may be nearly impossible without your steady income. Life insurance provides a solution, allowing your family to maintain their lifestyle and live comfortably without worry.
Many employers buy insurance policies on key employees to protect against the loss of services or income that might follow an employee’s death. In this case, the company receives the policy proceeds. Business partners often use life insurance similarly, purchasing policies to cover potential financial losses or to buy out a deceased partner’s heirs.
Additionally, life insurance can help pay federal estate taxes. Since these taxes must be paid in cash, a insurance policy ensures your estate can meet this obligation without selling assets.
Cost and availability of life insurance
The cost and availability depend on factors such as age, health, and the type and amount of insurance purchased. There are expenses associated with the purchase of insurance. Policies commonly have mortality and expense charges.
In addition, if a policy is surrendered prematurely there may be surrender charges and income tax implications. Any guarantees are contingent on the claims-paying ability and financial strength of the issuing insurance company. |
