 Life
insurance can be a valuable asset to your mix of insurance coverage,
especially if you have loved ones who depend on your income. At
the very least, life insurance can cover outstanding debts and funeral
costs, which can be significant.
What
is life insurance?
Life
insurance is an agreement between you (the insured) and an insurer.
Under the terms of a life insurance contract, the insurer promises
to pay a certain sum to someone (a beneficiary) when you die, in
exchange for your premium payments.
Why
would you need life insurance?
The
most common reason for buying life insurance is to replace the income
lost when you die. For example, say that you work, and that your
income is used to support yourself and your family. When you die,
and your paychecks stop, the life insurance proceeds can be used
to continue to support the family members you've left behind. Another
common use of life insurance proceeds is to pay off any debts you
leave behind.
For
example, mortgages, car loans, medical bills, and credit card debts
are often left unpaid when someone dies. These obligations must
be paid from the assets left behind. This can deplete the resources
that your family needs. Life insurance can be used to pay off these
debts, leaving your other assets intact for your family to use.
Life insurance creates an estate for your heirs. After your debts
and expenses are paid, there may not be much left over for your
family. Life insurance can automatically provide assets for them
after your death.
Life
insurance is a great way to give to charity when you die. You may
have always had a great philanthropic desire, but not the means
to make it a reality. Life insurance can do that for you.
Life insurance can be a critical component for specialized business
applications, such as funding a buy-sell agreement. Under a buy-sell
agreement, life insurance can be used to provide cash for the purchase
of a deceased owner's interest in the business.
Finally,
life insurance can be an investment vehicle. Some types of life
insurance policies may actually make money for you, as well as provide
the benefits described above. This can help you with long-term financial
goals. |
