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:
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.
Setting aside funds so that the beneficiary can pay for final expenses, such as funeral or other administrative expenses.
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.
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.
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.
Key Person, Executive Bonus, Split Dollar, and Deferred Compensation can be funded with life insurance.
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.
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.
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.
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.
Tony Steuer is an author and advocate for financial preparedness. Tony Steuer, CLU, LA, CPFFE, helps people make sense of the financial world in a way that’s easy for them to understand. His books including, “GET READY!,” “Insurance Made Easy,” and “Questions and Answers on Life Insurance,” have won numerous awards. Tony is the founder of the GET READY! Initiative which includes the GET READY! financial organization system, the GET READY! Financial Preparedness Club, GET READY! Podcast, and the GET READY! Financial Principles, a best practices playbook for the financial services industry. Tony served as long-term member of the California Department of Insurance Curriculum Board. Tony is regularly featured in the media including the New York Times, the Washington Post, Fast Company, and other media. He has also appeared as a guest on television shows, such as ABC’s “Seven on Your Side.” Visit https://tonysteuer.com/ to join the GET READY! Financial Preparedness Club and access free resources.