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  • Why do I need life insurance?
  • June 28, 2013
  • Tony Steuer

    By Tony Steuer, CLU, LA

    Times are changing, and so are the reasons why people are buying life insurance. The need for this type of insurance has grown from the original purpose.

    The following is a list of some of the more common reasons for life insurance:

    Income Replacement

    Providing financial stability and security, if a spouse or parent passes away prematurely, so that the lose of income is not devastating to the family.

    Payment of Outstanding Debt

    Ensuring that the beneficiary can pay off outstanding debts when the insurer dies, such as mortgages, car payments, and credit cards.

    Final Expenses

    Times are changing, and so are the needs for life insurance.

    Setting aside funds so that the beneficiary can pay for final expenses, such as funeral or other administrative expenses.

    Education Funding

    The death of a parent may mean that the quality of education, intended for a child, may be out of reach. A Life insurance policy can set aside money for these educational expenses.

    Emergency Funding

    Any adjustment expenses, such as time of work and medical and counseling expenses can be covered under a life insurance policy.

    Special Needs Child(ren)

    Life insurance provides a guarantee that the funds will be there to take care of those special needs.

    Business Continuation

    To provide funding to assist in orderly transfer of business ownership in the case of an owner’s death – life insurance guarantees that the business in transferred as intended.

    Business Insurance

    Key Person, Executive Bonus, Split Dollar, and Deferred Compensation can be funded with life insurance.

    Estate Taxes

    Under current tax law, life insurance can provide liquidity at death to pre-fund the estate tax liability, thus saving many families from the need to sell the family business on a rushed, inopportune timetable.

    Charitable Giving

    A charitable-minded individual may leave a gift to a favorite organization, without significantly reducing the size of their estate, by using the death benefit to replace the vale of the property gifted to heirs.

    Equalizing Inheritance

    Life insurance can provide additional liquidity to assist in providing each child with equal shares of their parents’ assets.

    Income in Respect of a Decedent

    People die owning assets that have not yet been taxed; these taxes then become the obligation of the surviving family members. Life insurance can provide the beneficiary with liquidity to assist in the payment of these taxes.

    Second Marriage

    There can be conflict when a parent with children remarries. Life insurance on the parent provides the new spouse with financial security from the insurance coverage. At the same time, it allows the children to receive the parent’s estate immediately. This can avoid unwanted animosity between the children and the new spouse and allow them to live in harmony.

About Tony Steuer

Noted insurance author Tony Steuer has spent over 25 years in the life insurance industry. Steuer’s leadership roles include serving on the California Department of Insurance Curriculum board and the National Financial Educator's Council Curriculum Advisory Panel as well as having served as President of the San Francisco Chapter of the American Society of CLU & ChFC, President of the leading Life Insurance Producers of Northern California, and as a board member of the San Francisco Life Underwriters Association. Mr. Steuer is the author of Questions and Answers on Life Insurance: The Life Insurance Toolbook, The Questions and Answers on Life Insurance Workbook and The Questions and Answers on Disability Insurance Workbook - the first two were awarded the “Excellence in Financial Literacy (EIFLE) Award from the Institute of Financial Literacy. Steuer holds a Chartered Life Underwriter (CLU) designation and also holds the Life and Disability Insurance Analyst License, a designation that is held by less than thirty people in California.

Creative Commons License
Questions & Answers on Life Insurance by Tony Steuer, CLU, LA, CPFFE is licensed under a Creative Commons Attribution 3.0 Unported License.

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