Life insurance is designed to protect your loved ones in the event of your death. Your beneficiaries may be your wife, your children or any other family members or partners with whom you have an emotional and financial obligation.
As a basic guide, consider the following ten items as bona-fide reasons to maintain life insurance:
1. Life insurance will free your family members from the burden of the loss of your income, debts owed, and daily expenses as the continue their lives if you should die.
2. It will secure your estate by providing tax free cash that can be used to pay estate and death costs and to shelter business and personal expenses.
3. Some life insurance policies retain a cash benefit, which can be available to you if you do not die prematurely. These funds can then be used to help support your retirement.
4. Coverage for critical illness can be made a part of some life insurance policies, which can help to pay some expenses during a period of disability.
5. A valid life insurance policy can improve your credit rating.
6. Creditors do not have access to cash value of a life insurance policy or to the death benefits in the event of a bankruptcy.
7. Funeral expenses can be covered by a life insurance policy
8. Certain types of Term life insurance allows you to get much of your premium back after a specified period if you do not die during the policy term.
9. A business that is dependent on an owner for funding or for business activity can benefit if from a life insurance policy in the event of the unexpected death of that person.
10. The lifestyle of your family can be maintained if you die.
Financial obligations result when you create a situation by which a person close to you comes to depend on the things that you do and the income you provide. Insurance can replace the income piece of this pie, but the part about the “things you do” while a bit different than money is still a component that needs to be calculated in assessing the need for life insurance. Take for example a family of four, which includes a husband, a wife, and two children. If the husband and father is the main breadwinner, his income should certainly be protected with a life insurance policy. However, what if he is a secondary income earner in the family and cares for the children for a large part of the week while the wife attends her higher income job? If the husband were to die, his income would still likely need to be replaced by insurance, but so would his services of caring for the children while their mother is at work. Services and activities such as this should also be considered in addition to the income of a family member.
Additionally, there are other financial obligations that should be considered including funeral expenses, unsettled medical bills, mortgages, unsecured loans, and college expenses to name a few.
In order to determine how much coverage you need, a careful look at your lifestyle and all of your debts should be reviewed. The best way to do this is with a quality financial advisor that has experience with planning for such contingencies.