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Why Do I Need Life Insurance: Best Examples

Director of Insurance
March 30, 2020

Are you asking yourself, “do I need life insurance," or "should I get life insurance?” 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 advantages of 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]

1. Protect those you love

One of the most important reasons to get life insurance is to protect those you love from financial catastrophe if you should die prematurely. There's a certain peace that comes with knowing that if you were to die TODAY your family would be provided for financially.

According to recent life insurance statistics, if the primary wage earner was to pass away, 70% of US households (with a child under the age of 18 years) wouldn’t be able to keep up with living expenses.

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. It's also 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.

2. Provide liquidity for your business or estate

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 is 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. The funds from the policy can provide needed cash to help pay for hiring and training 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.

3. Cover a business loan

Another top reason you need to buy life insurance is 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 risks developing a health condition that might make getting life insurance tough, to downright impossible.

4. Pay off the mortgage

One of the most important reasons for having life insurance is to cover a mortgage on your 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.

5. Leverage your wealth for estate planning

For those who are blessed with great wealth, life insurance provides a fantastic way to maximize that wealth. at a certain tax exempt 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 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.

6. Cover final expenses

Another important reason why you need life insurance is simply for 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.

If you need burial insurance check out our article on the top final expense insurance and burial insurance companies.

7. Protect your business from the loss of a key employee

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.

8. Pay for college

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 expensive. One way you can help ease the burden of student loan debt on your children is by providing for them through life insurance proceeds in the case of your death.

You should also 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.

9. Provide for a charity

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. 

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.

10. Create a legacy

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. 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. Get a quote today.

Written by
Nina has spent over a decade creating and managing content to help people find the resources online that they need and want. Her diverse experience spans working with billionaires to beauty queens, but the common thread has remained to get people the help they need online. When Nina isn’t thinking about connecting the digital dots, she is spending time with her husband, daughter and rescued boxer in Phoenix, Arizona.