Why Life Insurance Is Important: The Top 9 Reasons

Shawn Plummer

CEO, The Annuity Expert

Life insurance is often overlooked, but it plays a vital role in protecting your family’s financial future. Unfortunately, not many people realize the importance of life insurance until something drastic happens, such as a death or medical emergency. Losing a loved one can be devastating enough without the financial burden exacerbating the emotional trauma and making things more complex for those left behind. But with a life policy, you have confidence knowing that your financial obligations will be taken care of during this difficult time. This guide provides an overview of why life insurance is so crucial and why now may be the best time to secure coverage for yourself and those who depend on you financially.

What is a Life Insurance Policy?

Protecting your family is one of the most important responsibilities you have. Life coverage allows you to do just that by providing a financial cushion in the event of a loss. It’s an agreement between yourself and an insurer, guaranteeing monetary compensation should something unfortunate occur, such as death or terminal illness. With life insurance, rest assured that those closest to you are cared for even when times get tough. It’s a simple way to provide financial security for your family.

Life insurance comes in many forms, from term to whole life and variable universal life. Each has its own set of benefits and drawbacks, so it’s essential to understand the details of each before making a decision. Term life is often the most affordable option, providing a set amount of coverage to a policyholder for a certain period. Whole-life policies are more expensive but offer more flexibility regarding coverage amounts and payment plans. Finally, variable universal life is best suited to those who want the potential for additional investment returns within their policy.

No matter which type of policy you choose, it’s essential to ensure that the coverage is adequate for your family. Remember that life proceeds are tax-free and can cover various needs, such as funeral costs, medical expenses, mortgage payments, or college tuition. In addition, life policies purchased through an employer may offer additional benefits, such as disability.

Why Is Life Insurance Important

Why is Buying Life Insurance Important?

In the event of your passing, insurance benefits can provide financial security to your loved ones and help them cover essential expenses. Whether it’s paying down a mortgage or tuition for children, a debt like credit cards, or an auto loan – with these funds, your beneficiaries will have peace of mind knowing that you provided some measure of protection in case tragedy strikes. Other benefits include covering funeral costs, providing a steady income for your family, and even creating a legacy or charitable donation.

Pay Daily Living Expenses

People buy life insurance for many reasons. One reason is to help their family cover essential expenses like groceries, utilities, and car payments if something happens to them.

If your paycheck suddenly stopped, your family would need another way to pay for everything. That’s where life insurance comes in. If something happens to you, life insurance can help your family financially much more quickly than if they had to wait for your estate to be settled, which can take months.

Protect Your Home

Your family home is so important. It’s where you make memories, bring the kids home from the hospital for the first time, and teach them how to ride a bike. But, unfortunately, it’s also typically one of your family’s most significant expenses. The median monthly mortgage payment is about $1,100 in the United States. That’s a considerable expense for your family to cover without financial support.

If something happens to you and you die, your life insurance money can help your family pay the mortgage. This way, they don’t have to move out or downsize. Many people buy term life policies that are the same length as their mortgage loan. The longest-term policy is usually 40 years long, covering you the whole time if you have a 30-year mortgage.

A life insurance payout can help your family pay for their debts if you die. This includes co-signed debts like car loans and student loans. So if you have a mortgage or other debt, don’t worry – getting life insurance can help your family avoid those costs if something happens to you.

Pay for Your Child’s Tuition

The percentage of people who are going to college is going up. As a result, the average cost of college tuition and fees is getting more expensive. Remember that room and board, as well as other costs, can push these figures even higher.

If your child wants to go to college, it is essential to have a plan to pay for it. Even if your child doesn’t want to go to college, they might want to learn a trade or go through another program that needs funding.

Life insurance can help protect your family’s dreams if something happens to you. To figure out how much coverage you need, think about how many kids you have and how much it will cost to send each one to school. You may need more coverage if the school is expensive.

To Pay For Funeral Costs

It is essential to plan for funerals. They can cost a lot of money, more than $9,000. This is a lot of money, and it is essential to remember this when planning your budget. Funerals are expensive, but medical treatments and residential care can be even more expensive. Make sure you save for these expenses, so your loved ones don’t have to bear the burden alone.

Life insurance can help cover costs when someone dies. Final expense insurance is for this purpose. It provides a smaller death benefit but is very affordable and easy to qualify.

To Leave an Inheritance for Beneficiaries

Do you want to leave something behind for your kids or grandkids to help them reach their own financial goals? One way to do that is by getting life insurance. This is an easy and affordable way to help them out. You can also leave an inheritance for a charity. Some tax advantages might also be involved depending on how you do it. Talk to an accountant to ensure you get the most out of the tax benefits.

To Protect Your Business

If you die unexpectedly, life insurance can help your business keep going. The payout from a policy provides cash to cover things like payroll, inventory, and other immediate financial needs. In addition, it is cheaper than borrowing money from a bank or credit union.

If you have a business partner, you might need life insurance that names your partner as the beneficiary. If something happens to either of you, this will provide financial security for your family. You may also get a tax deduction if you buy a policy for business reasons. So talk to your accountant if you are interested in doing this.

Give Your Family More Control Over Their Financial Future

Your family can use the money for whatever they need, relieving stress, and the payout is usually tax-free. Every family’s needs are different, so their dreams for the future may be different too. Ultimately, life insurance provides options – the options you would have worked to give your loved ones if you were there. If you’re unsure how much you need or what your family could use it for, start by calculating a coverage amount with our term life insurance calculator.

Secure Your Spouse’s Retirement

A retirement goal is something you think about and save money for over a long period. However, if you die before you retire, life insurance can help make sure that your partner can still enjoy the retirement you planned together.

Provide Cash For A Rainy Day

Permanent life insurance policies can provide financial support during your lifetime and after your death. Permanent life insurance lasts your whole life as long as you pay your premiums, and it builds cash value over time. This money can help you achieve big and small financial goals during your lifetime, including covering college costs, paying for home improvements, or paying for a big trip. In addition, you can borrow from it tax-free or use it as collateral for a loan.

Why Is Life Insurance So Important

What Happens if You Have No Life Insurance?

If you don’t have a life policy and something happens to you, your loved ones will be faced with the immense burden of paying for your final expenses, including funeral costs and debt. The financial weight can shock them in a difficult time; having life coverage can help protect your family from shouldering those burdens alone. Your family may have to use their own money or take on debt to cover expenses. With life coverage, they can receive the death benefit quickly after filing a claim, granting them financial security during a hard time.

What is a Death Benefit?

When an insured individual passes away, the beneficiary of their life policy will receive a lump-sum payment known as a death benefit. This payout is not subject to income tax and provides financial security for those affected by the loss of their loved one. The death benefit can be used to pay for funeral and burial costs, medical bills, debts, and other necessary expenses. It can also provide financial support to surviving family members, so they don’t have to worry about the immediate financial burden during a difficult time.

The death benefit is an essential part of any estate plan and should be weighed carefully when considering how to provide for loved ones in the event of your passing. Reviewing and updating these plans regularly is essential to ensure they align with your wishes and financial situation. Your provider can help you determine the best type of plan for your needs, as well as help you understand how it will affect your beneficiary in the event of your death.

At What Age Should You Consider Getting Life Insurance?

Investing in a term-life plan during your twenties is one of the most cost-effective decisions. Since you are young and healthy, insurers perceive a lower risk when insuring you, thus allowing for more budget-friendly rates.

In addition, since term life is designed for a specific time, you can tailor the policy to fit your needs and budget. For example, your employer might offer a group life insurance policy as a benefit for working there.

Finally, it’s important to note that premiums tend to increase with age, making it even more sensible to start comparing quotes while you are still in your twenties.

What are the Advantages of Having Life Insurance?

The most significant benefit of life insurance is ensuring your family’s financial stability should you unexpectedly pass away. Life insurance can help pay off debts and mortgages and provide a source of income should the primary earner in the family can no longer provide. It can also be used for funeral expenses, college tuition fees, and other unforeseen expenses that strain your family’s finances.

Another advantage of life insurance is many policies build cash value over time. This money can be used as a death benefit for your beneficiaries, supplement retirement income, or pay for other living costs. Some policies even allow you to take loans from your cash value, using the policy’s death benefit to repay it if you die before the loan is repaid.

Finally, life insurance policies can provide tax advantages. For example, depending on your policy, you may be able to deduct the premium payments from your federal income taxes and receive dividend payments that are not subject to income tax. Sometimes, life insurance may also be exempt from estate taxes when passed along as part of an inheritance.

What is the Downside of Buying Life Insurance?

While life insurance has its advantages, it can also be costly. Your premium is determined by your age, health status, and habits, so if you’re young and healthy with a low-risk lifestyle, chances are that you’ll pay lower premiums than someone older or unwell.

Additionally, the terms and conditions of specific policies can be complicated to understand. So it’s essential to read through all the details carefully to know exactly what kind of plan you’re getting.

Lastly, if your situation changes over time, such as getting a new job or having a child, you may need to adjust your policy accordingly.

What is the Best Life Insurance Policy to Purchase?

The best life insurance policy will vary depending on your individual needs.

If you’re looking for an affordable way to protect your family, you may want to buy term life insurance. This policy is reasonably priced and lasts a predetermined length of time stated in the agreement. It’s the most straightforward form of life insurance and is an excellent choice for those who don’t want to make any long-term commitments.

To ensure your loved ones are financially secure, permanent life insurance may be a great option. This policy provides an active death benefit that remains effective as you pay the premiums. Plus, it includes an investment feature to accumulate cash value over time and use it for retirement income or other purposes.

Universal life insurance might be a good choice if you’re looking for a plan that adjusts over time to meet your changing needs. This policy offers flexibility in terms of premiums and death benefits, allowing you to make adjustments as needed throughout the policy’s lifetime.

Is Life Insurance a Good Investment?

The average permanent life policy allows you to grow your cash value by 6-8% annually. That’s significant compared to the standard 0.1% in a typical savings account. So you’re getting more growth and money to play around with later in life.

Life insurance can be integral to your retirement planning, providing diversification to help reduce risk and optimize gains. The cash value component from life insurance can supplement Social Security benefits or pay off debts in retirement, giving you the freedom to enjoy your golden years without financial worry. With proper planning, life insurance can become a powerful component of your larger portfolio strategy.

Life insurance also has tax advantages, depending on your buying type. Whole life insurance has tax-free growth potential, and you can use it for any purpose if it fits within the policy limits. Universal life insurance may also offer some tax advantages, depending on how much you contribute each year.

Is it Better to Have Life Insurance or Savings?

Having cash ready to handle unforeseen emergencies is essential, depending on your current situation and ambitions. However, life insurance shouldn’t be overlooked as an affordable security measure that can also play a part in long-term financial planning.

Savings are the traditional method for storing money and preparing for a financial crisis. Having funds tucked away can give you peace of mind and provide a cushion should something unexpected arise. It can also be used to purchase items that improve your quality of life, such as a car or vacation. A well-funded savings account is vital for building financial security.

On the other hand, life insurance provides a secure way to protect your family’s future and provide them with resources should something happen to you. It can also offer peace of mind knowing that your loved ones will still be taken care of in the event of your death. In addition, life insurance is designed to provide financial stability and help offset the costs of paying off a mortgage, final expenses after death, or a financial safety net for surviving family members.

Whether it is better to have savings or life insurance depends on your circumstances and goals. For example, saving money is likely your best option if you seek short-term protection and an emergency fund. But if you are looking for a long-term solution to help ensure your family’s future security and offset death costs, then life insurance may be the better choice.

How Much Life Insurance do I Need?

As a general guideline, you should set aside 6% of your gross income and 1% for each dependent. This would give you enough coverage to replace your income for at least ten years and provide financial security for your family. Of course, this can vary based on various factors such as age, health status, lifestyle, and other considerations.

How do you Buy Life Insurance?

You can easily purchase life insurance, and it can be done in just four steps:

  • Determine your needs – Assess the amount of life insurance you need to cover your family’s lifestyle and financial obligations if something happens to you.
  • Compare policy types – Review the different types of policies that are available and decide which is most suitable for you.
  • Compare plans – Research the best life insurance companies and compare their rates, premium options, and customer service history before making your final decision.
  • Purchase the policy – Once you’ve decided on the right plan and cost that meets your needs, buying life insurance is easy. But first, contact a broker or the best life insurance company for your needs to purchase your policy.

Next Steps

Life insurance is essential for anyone, regardless of whether you’re just starting in life or entering your twilight years. It can provide much-needed financial security to you and your family in case of unexpected developments, illnesses, or death. Taking the time to look around and shop for a life insurance policy that best suits you is a smart move that will benefit you and your loved ones for many years. Plus, it can be surprisingly affordable, depending on the type of policy and coverage you select.

Ultimately, life insurance is among the wisest decisions we can make to ensure our families’ safety and economic stability no matter what happens in our lives – ensuring peace of mind now and into the future.

Why Life Insurance Is Important

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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