Do I Need Life Insurance?

Overview From protecting loved ones to covering debt expenses, there are different reasons you might need to acquire life insurance policy coverage:

Protecting loved ones, to provide financial stability to your beneficiary or beneficiaries after your death. The death benefits your beneficiaries receive upon your death will replace your income and can help your family members meet key important financial needs like mortgage payments, daily living expenses and college funding. Furthermore, life insurance benefits are not subject to federal income tax.

Final expenses, such as a funeral, burial, and unpaid medical bills

Debt coverage, to pay off personal and business debts, such as a home mortgage or business operating loan

Estate liquidity, when an estate has an immediate need for cash to settle federal estate taxes, state inheritance taxes, or unpaid income taxes on income in respect of a decedent (IRD).

Business succession & continuity, for example to fund a cross-purchase or stock redemption buy/sell agreement.

Key person insurance, to protect a company from the economic loss incurred when a key employee or manager dies. An alternative to long-term care insurance, where new policies have accelerated benefits for Long Term Care.

Charitable gift, where a Universal Life (UL) policy is donated to a qualified charity, or the policy owner names a charity as the beneficiary.

Life insurance retirement plan, or Roth IRA alternative, for high income earners who want an additional tax shelter, with potential creditor/predator protection, who have maxed out their IRA, who are not eligible for a Roth IRA, and who have already maxed out their qualified plans.

Here are some potential scenarios that might also apply to you:

You Are Married

If you died today, having a life insurance policy would ensure that your surviving spouse does not have to rely solely on his/her income to pay off debts like credit card balances and car loans, or cover the monthly mortgage payments and utility bills. Also, if you are planning to have children, you may want to buy life insurance now instead of waiting until pregnancy as the cost of acquiring a policy is likely to increase during that time.

You Are Married and Have Children

Most families depend on two incomes to make ends meet. If you died suddenly, could your family continue meet all their financial obligations, such as mortgage payments and living expenses? Having a life insurance policy will lighten your spouse’s financial burden and avoid forcing your family’s standard of living to drop. It will, for instance, make sure that plans such as sending your children to college stay intact.

You Are a Single Parent

As a single parent, your family’s financial stability is directly correlated to your own financial health. With so much responsibility resting on your shoulders, you need to ensure that you have enough life insurance to guarantee a safe financial future for your children.

You Are a Stay-At-Home Parent

Assuming you have small children in your charge, if you die today, your spouse will then need to keep working, which means the kids will need a nanny or day care to look after them. You might not need a large life insurance policy, but you can buy a policy that fits the financial needs of your family. Just because you don’t earn an actual income doesn’t mean you don’t contribute financially to the well-being of your family. Household activities are all important tasks, and their replacement value can easily be underestimated. With a life insurance paid for, your family can afford to make the choice that best preserves their quality of life.

You Have Grown Children

Many people mistakenly believe that once their children have graduated from college and the mortgage has been paid off, they do not need life insurance any longer. However, if you died today, your spouse would still be faced with daily living expenses. Having a life insurance ensures that your financial plan will enable your spouse to maintain the established lifestyle now and into retirement.

You Are Retired

The proceeds of a life insurance policy are payable immediately. This allows beneficiaries to take care of taxes, funeral costs and other debts without having to liquidate other assets in a rush, often at a fraction of their actual value. Life insurance proceeds are also generally income tax free and won’t add to your estate tax liability, if properly structured.

You Are Single

It is commonly believed that most single people do not need life insurance because they are not financially responsible for anyone else. But there are exceptions. For instance, some single people provide financial support for aging parents or a sibling with special needs. Others may be carrying significant debt that they wouldn’t want to pass on to family members who survive them. Insurability is another reason to consider life insurance when you’re single. If you’re young, healthy, and have a good family health history, your insurability is at its peak. You’ll be rewarded for applying now with the best rates on life insurance.

You Are a Small-Business Owner

Besides taking care of your family, life insurance can also protect your small business. Assuming you are a partner in a business and its success relies significantly on your ability to bring in capital and clients. A life insurance policy naming a business partner as the beneficiary could help the business continue to exist while they learn to get along without you if you were to suddenly die. Also, in case your business has several owners, a life insurance policy could be structured to fund a buy-sell agreement. This would ensure that the remaining business owners have the funds to buy the company interests of a deceased owner at a previously agreed upon price. That way, the owners get the business and your family gets the monetary value of your share. Furthermore, if one of your key employees were to die today, a key person insurance, payable to the company, could be used to provide the owners with the financial flexibility needed to either hire a replacement or work out an alternative arrangement, in order to protect your business.

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