At some point in your life, you'll probably be faced with the question of whether you need life insurance. Life insurance is a way to protect your loved ones financially after you die and your income stops. The answer to whether you need life insurance depends on your personal and financial circumstances.
Should you buy life insurance?
You should probably consider buying life insurance if any one of the following is true:
- You are married and your spouse depends on your income
- You have children
- You have an aging parent or disabled relative who depends on you for support
- Your retirement savings and pension won't be enough for your spouse to live on
- You have a large estate and expect to owe estate taxes
- You own a business, especially if you have a partner
- You have a substantial joint financial obligation such as a personal loan for which another person would be legally responsible after your death
In all of these cases, the proceeds from a life insurance policy can help your loved ones continue to manage financially during the difficult weeks, months, and years after your death. The proceeds can also be used to meet funeral and other final expenses, which can run into thousands of dollars.
If you're still unsure about whether you should buy life insurance, a good question to ask yourself is: If I died today with no life insurance, would my family need to make substantial financial sacrifices and give up the lifestyle to which they've become accustomed in order to meet their financial obligations (e.g., car payments, mortgage, college tuition)?
If you need life insurance, don't delay
Once you decide you need life insurance, don't put off buying it. Although no one wants to think about and plan for his or her own death, you don't want to make the mistake of waiting until it's too late.
The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved. As with most financial decisions, there are expenses associated with the purchase of life 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.”
Generally, Life insurance death benefit proceeds are tax-free to the beneficiary. However, a few situations exist in which the beneficiary is taxed on some or all of a policy's proceeds. I.E. when life insurance proceeds are paid to the decedents estate, they maybe subject to estate or inheritance tax. Make sure to consult with your financial planner before making an election.
Life insurance can be very beneficial when it comes to estate planning. Life insurance death benefits are liquid, and therefore help provide estates with liquidity. For example, let's say you pass away with a sizable debt to your name. Life insurance proceeds can be used to pay off those debts when there is no other liquid assets available.
Periodically review your coverage
Once you purchase a life insurance policy, make sure to periodically review your coverage--especially when you have a significant life event (e.g., birth of a child, death of a family member)--and make sure that it adequately meets your insurance needs. The most common mistake that people make is to be under-insured. For example, if a portion of your life insurance proceeds are to be earmarked for your child's college education, the more children you have, the more life insurance you'll need. But it's also possible to be over-insured, and that's a mistake, too--the extra money you spend on premiums could be used for other things. If you need help reviewing your coverage, please contact us. We'd be happy to review your policy with you!
The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy
involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved. As with most financial decisions, there are expenses
associated with the purchase of life 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.