The primary purpose of life insurance is to guarantee the continued financial support of your family and loved ones in the event that you die prematurely. In a recent survey, 40% of families would immediately have trouble paying every day expenses if the primary wage earner died. 30% would have trouble meeting expenses after several months.
Last week, we covered 5 important reasons to consider buying life insurance. This week, we touch on 5 more reasons that life insurance could be important for you.
1. Create or supplement a retirement fund
Current insurance products provide competitive returns and are a prudent way of accumulating necessary funds for retirement years. (*This is really a good option if you need help forcing yourself to save for retirement. An annual bill with premium due is a good way to make yourself put money away. If you otherwise have the discipline or a retirement plan in action, life insurance may not be the most effective savings vehicle for you.)
2. Pay estate (death) taxes
If your estate is over a certain amount, it may be subject to estate taxes. The total estate value can be eroded by up to 50% because of the tax and associated settlement cost. Those federal estate taxes are generally due nine months after death. If the estate’s value is tied up in real estate or a business, your beneficiary may not have liquid cash with which to pay this tax bill. To avoid a fire sale of your assets (with the potential of a decrease in value), life insurance can provide the cash to your beneficiary for this tax bill.
3. Comply with a court order
A divorce settlement with minor children involved may include a court ordered life insurance policy. This life insurance would continue the child support in the event of the death of the payor before the support order ends.
4. Make a gift
Life insurance is often used to make gifts to individuals or charities. You can either leave a lump sum amount to a charity/individual upon your death OR you can gift the amount of the annual premium to the person/charity, leaving them as the beneficiary of the death benefit.
5. Business purposes
If you are a business owner, you may be thinking about the future of your business if something should happen to you or to one of your key business partners. Life insurance is often used to fund business transfers, business continuation or buy-sell agreements for business owners. The right life insurance product can also be used to reward key employees or to protect the business against the loss of a key employee. Would your business suffer financially at the premature death of a key employee? How long would it take for you to fund, find and hire a replacement for the key employee?
Remember – the time to think about life insurance is NOW – before you really need it.
Kathleen Tagge, CIC is a licensed independent insurance agent in Illinois. She enjoys working with clients to mitigate business and personal risk through proper insurance coverage before problems arise. As a small business owner, wife and mother, many of the 10 reasons listed are relevant and important in her own life.