Why Your Financial Plan Isn’t Complete Without Life Insurance

Why Your Financial Plan Isn’t Complete Without Life Insurance

When creating a comprehensive financial plan, life insurance may not be the first thing that comes to mind for most investors. However, it is an essential component that has the ability to protect other assets and, more importantly, those whom you love.

The Many Uses for Life Insurance Proceeds

While life insurance policy proceeds are often used for paying final expenses such as funeral and burial costs, that is just the beginning in terms of what these funds can be used for. In fact, life insurance is used a great deal in financial planning for funding both short- and long-term goals such as:

  • Paying off the balance of a mortgage
  • Funding a child’s future college education expenses
  • Donating to charitable organizations
  • Reducing or eliminating estate taxes

In addition, life insurance proceeds can also be used to replace lost income. This means that your family won’t have to make major changes in their living situation such as selling their home or cutting back on other expenses – especially in an already difficult time.

Losing a Stay-at-Home Spouse

If a family’s primary breadwinner passes away, it can present an obvious financial hardship. Yet, many people may not realize the extent of the financial loss should a stay-at-home spouse or partner die unexpectedly.

In this case, it is important to add up the expense of the numerous jobs that would need to be replaced such as cleaning, cooking, child care, carpool, and other regular activities. If outside help would need to be hired, the overall cost could be substantial.

Individual Protection

Life insurance is an important financial tool for single individuals, too. While many single individuals may not have a spouse or children who are dependent on their income for survival, there are still many reasons that exist to have life insurance coverage.

First, the average cost of a funeral today is approximately $10,000. In most cases, the funeral home will require payment at the time of service, or soon afterwards. Family or loved ones may be left paying the tab using credit or other costly means. In this case, life insurance proceeds can be even more important if the single individual has no savings or other assets from which to obtain funds these funds.

A single individual may also need life insurance proceeds for the payment of estate taxes. Because they have no spouse to transfer their assets to on a tax-free basis, these individuals can be hit especially hard with estate taxation. Life insurance can help to ease this burden.

Protecting Your Business

Those who are owners or partners in a business should also consider purchasing life insurance coverage, as the unexpected passing of any key person in a company could be devastating – not just to the business, but also to the employees and families who depend on the income from that business.

Funds from a life insurance policy can be used by the other business owners or partners to purchase the deceased individual’s share of the company. The funds could also be used to keep the business running while a replacement owner or partner is found.

The Time is Now

There are several good reasons to apply for life insurance coverage sooner versus later. First, the premium you pay will be based on your age and your health at the time of application. Therefore, the longer you wait, the higher your premium is likely to be.

In addition, the longer you wait to apply, you also run the risk of acquiring an illness or injury that could make you uninsurable for coverage. If that is the case, it will be too late. Locking in coverage early, then, can essentially provide you with financial peace of mind.

Once you have a policy in place, it is important to regularly review your coverage to ensure that the amount is still adequate. This is especially the case if you have experienced any major life changes such as a marriage or divorce, a birth or death in the family, or you have recently purchased a new home or taken on another form of debt.

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