If you are reading this you may be asking yourself, “Do I need life insurance,” or “should I get life insurance?” The truth is, most people realize the importance of having at least some life insurance. However, those asking the question, “who needs life insurance” may fail to consider some of the more important reasons to have life insurance. The following list of the top ten reasons you need life insurance will help shed some light on why you may need to get covered today.
Importance of Life Insurance [Top 10 Reasons]
- Protection for those you love;
- Liquidity for an estate or business;
- Securing a Business Loan;
- Protecting a Mortgage;
- Estate Planning;
- Final Expense Planning;
- Business Key Employee;
- College Loans;
- Gift to Charity;
- Establish or Enhance a Legacy
One of the most important reasons to get life insurance is to protect those you love from financial catastrophe if you should die prematurely. I know in my own life I have a certain peace that transcends my circumstances knowing that if I were to die TODAY my family would be provided for financially.
Life insurance is for those you leave behind. One of the best ways you can provide for those you love if you should die is through life insurance. And it is important to have enough life insurance in place, (see how inexpensive a million dollar life insurance policy can be) so those you love are not left in a financial tailspin to go along with the emotional tailspin they are already dealing with due to losing you.
The importance of life insurance for business owners can’t be understated. There are three main reasons you need to get life insurance to cover your business.
As a sole proprietor you will need coverage to provide enough liquidity for your family and/or business so that creditors can be paid and receivables can be collected. And perhaps the most important reason for life insurance as a sole proprietor is to buy TIME—time to allow your family to find a buyer to purchase the business or time to allow your family to properly wrap up and close the business.
The second reason life insurance is important would be to allow business partners to fund a buy sell agreement. The insurance will allow the surviving partner to purchase the deceased partner’s share in the business. In doing so the surviving business owner can buy out the family instead of having a member of the deceased owner’s family trying to step in and attempt to run the business.
For larger corporations, key man insurance is also a great way to provide liquidity for the business in the untimely death of a valuable employee. The funds from the policy can provide needed cash to help pay for hiring and traininig a replacement.
Large estates, similar to businesses, may not have the cash available to pay off creditors and pay taxes. Many large estates are property rich and cash poor. Using life insurance in an estate plan will help avoid fire sales of valuable real estate and securities. The cash benefit can be used by the beneficiaries of the policy or the trustee to pay off debts and avoid liquidation of securities and real property.
Another top reason you need to buy life insurance is for to cover SBA loans or bank loans. If the business owner is a key man, life insurance will probably be required by the Lender in order to qualify for the loan. Business owners, and potential future business owners, can do themselves a favor by purchasing cash value life insurance while they are young and healthy instead of waiting until he or she needs it and risk developing a health condition that might make getting life insurance tough, to downright impossible.
When speaking to clients, one of the most important reasons for having life insurance is to cover a mortgage on the family’s primary residence. The good news is a mortgage is a tangible thing that can easily be measured.
For example, a 30 year, $350,000 mortgage can be insured by taking out a $350,000 life insurance policy with a 30 year term. Just be careful to choose level term life insurance versus decreasing mortgage insurance.
Another reason of why life insurance is important is due to the leverage that you get. And for those who are blessed with great wealth, life insurance provides a fantastic way to maximize that wealth. The 2017 federal estate tax exemption is $5,490,000 and $10,980,000 for a married couple. If you are above that level, life insurance can provide the liquidity your estate needs to pay estate tax and provide liquidity to avoid having to sell valuable assets.
One of the best bangs for your buck is term life insurance compared to whole life. However, the maximum term length is 30 years. But if you are still relatively healthy, a guaranteed universal life insurance policy or indexed universal life insurance might just be the ticket to maximizing your wealth. The policy is relatively inexpensive for a permanent life product and the proceeds are income tax free, making it an excellent option for funding irrevocable life insurance trusts.
Another important reason why you need life insurance is simply for burial insurance or final expenses. One of the worst things to hear about is a family who just lost a loved one and they cannot provide a proper burial or cover final expenses. Worse, the loved one who died has debt that must be paid but there is no money to pay it. A small life insurance policy would have been sufficient to cover the debt and the funeral but unfortunately he or she did not plan ahead. Instead, they left their family holding the bag. This is not the way you want to be remembered. If you need burial insurance check out our article on the top final expense insurance and burial insurance companies.
Businesses also need to realize the importance of life insurance. For example, businesses purchase life insurance to cover key employees. Business owners and certain key employees of the company that are vital to the continuance of the company should have life insurance that would pay out to the business if a key man should die. The benefits are numerous, but the main benefit is providing fast cash to make up for the financial loss of losing a highly important employee of the business.
You either need to get life insurance to cover your own student loan debt or to cover the cost of college for your children. If your student loan debt is part of the FFELP program, it will be forgiven upon your death. However, under current tax guidelines, the amount that was forgiven will be considered as income and your estate will be on the hook for the income tax. Life insurance can provide the funds your estate needs to cover any dues owed the IRS.
Another reason you need to have life insurance is to pay for college for your kids. College is way too expensive. One way you can help ease the burden of student loan debt on your children is by providing for them beyond the grave through life insurance proceeds. Better yet, maybe he or she can qualify for a scholarship—but don’t bank on it. It is better to do what you can now so that if you die TODAY your children will have a bright future, with the freedom to choose whatever path he or she desires to pursue.
Also, you should consider the importance of life insurance for children. By funding a whole life policy for your child the cash value can be used for college or for whatever other needs arise. And the best part is the cash value of the policy is not considered an asset for student financial aid purposes, unlike a 529 Savings Plan.
The list of important reasons to have life insurance as a philanthropist are many. The main importance of life insurance would be to maximize your gift to your favorite charity or non profit. And the donor gets a potential tax benefit if the policy is gifted to the charity.
A great vehicle for providing for a charity is a second to die life insurance policy taken out on a husband and wife. Survivorship life insurance pays the beneficiary (your charity of choice) upon the passing of both spouses. And because the insurance is on two people the premiums are less than trying to buy insurance on just one person, especially when one of the two primary insured has a health condition.
Another way you can provide for charity and still make sure your heirs receive all or a portion of your estate is to gift an asset or assets to a charity and purchase life insurance in the amount of the gifted asset or assets. For example, if you have highly appreciated stock worth a few million dollars, you can give the charity the stock, receive potential tax savings, and that asset can be replaced with life insurance in an equal amount so that your beneficiaries don’t miss out.
Of all the reasons of why to buy life insurance, the main thing to keep in mind is life insurance creates a legacy, especially when you are intentional and apply the principles of infinite banking. When life insurance is purchased there is nothing tangible that comes along with it for the insured. A lot of times you do not even get a hard copy of your policy, as everything has gone electronic. But what your family receives when you die is a financial legacy from you that will keep your family’s memory of you alive for years to come.
Consider two families—one family has a father who has life insurance and the other family has a father without life insurance. Both families tragically lose their father. Both families are reeling from the emotional loss. However, the family with the father who had insurance leaves a financial legacy to his heirs. His heirs just received a leg up in life. Depending on the amount left behind, the heirs can buy homes, start businesses, pay for school, pay off debt, and get ahead in life.
The family of the father with no life insurance may not have the same luxuries. Instead, they may even be forced to sell off assets just to provide a proper funeral or host a charity event, such as a car wash, to bury their dad.
What legacy do you want to leave behind? Don’t wait until it is too late as tomorrow is guaranteed to no one. Make the move today and get life insurance.
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