Why Buy Life Insurance?
There used to be a sign on the wall of a local insurance agent. It said that no widow ever complained that her husband had too much life insurance. If any family provider passes away they could leave the survivors with a big problem unless they have enough savings to replace the lost income. Beyond the loss of that person, they may struggle to live well afterwards.
Replace Lost Income
So this brings us to the first benefit of life insurance. It is used to replace the earnings that were lost when a person passes away. When people sit down to figure out how big of a policy they should buy, they usually try to estimate how much of their income would be lost. They try to figure out what resources or assets they have to replace that money. Then, ideally, they choose a death benefit that can fill that gap.
If the premium for that amount of coverage is too high for their budget, they may buy less. At least the survivors will have some money to help them adjust to their new life.
Pass On An Estate
Insurance benefits are usually not taxed. In addition you may be able to purchase a much higher death benefit than the actual premiums you will have to pay. So a policy is one way to build an estate. This could be for a spouse or kids. In some cases, it could be for a favorite charity.
Here is one common use of a life policy. Consider an example where a man owns an auto repair garage. Let us say that one of his sons has been trained and groomed to take over the business when the father dies. This man also has two daughters who have decided to become teachers, and they want nothing to do with working in an auto garage.
In this case, the father could leave the business to his son, and he could compensate his daughters with the proceeds from the policy. This can also be used to buy out a family in case two partners run a business, and one of them dies.
Build An Asset
Permanent life insurance policies, or those that can be converted into permanent policies, can also have another use. Over time they can grow a cash value. This cash account can be used as a source of funds. It could be borrowed against or cashed in. In some cases, you can find investors who will purchase the policy for some percentage of the face value. This is called a life settlement. So sometimes, a policy can be used to help build a cash asset that can be used while the insured person is still alive.
Some policies also have an accelerated death benefit. This means that the insurer will pay all, or part of, the death benefit, in cased the insured person has a terminal illness. Some have riders that will even pay for other things like nursing home care. This means that the insured person could actually get some benefit from their policy while they are still alive and need the money for care.
Learn More About Life Insurance
The right policy for you will depend upon your budget, plans, and needs. It may help to get some quotes so you can compare policies. It will also help to consult with a qualified insurance agent to make sure you understand your choices.