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Inside this Article
Why
Should I Buy Life Insurance?
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Many financial experts consider life
insurance to be the cornerstone of sound financial planning.
It can
be an important tool in the following situations:
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Replace
income for dependents
If people
depend on your income, life insurance can replace that
income for them if you die. The most commonly recognized case of
this is parents with young children. However, it can also apply to
couples in which the survivor would be financially stricken by the
income lost through the death of a partner, and to dependent
adults, such as parents, siblings or adult children who continue
to rely on you financially. Insurance to replace your income
can be especially useful if the government- or employer-sponsored
benefits of your surviving spouse or domestic partner will be
reduced after your death.
Pay final
expenses
Life insurance can pay your funeral and burial
costs, probate and other estate administration costs, debts and medical
expenses not covered by health insurance.
Create an inheritance for your
heirs
Even if you have no other assets to pass to your
heirs, you can create an inheritance by buying a life insurance
policy and naming them as beneficiaries.
Pay federal “death” taxes and
state “death” taxes
Life insurance benefits can pay estate taxes so
that your heirs will not have to liquidate other assets or take a
smaller inheritance. Changes in the federal “death” tax rules
between now and January 1, 2011 will likely lessen the impact of this
tax on some people, but some states are offsetting those federal
decreases with increases in their state-level “death” taxes.
Make significant charitable
contributions
By making a charity the beneficiary of your life
insurance, you can make a much larger contribution than if you
donated the cash equivalent of the policy’s premiums.
Create a source of savings
Some types of life insurance create a cash
value that, if not paid out as a death benefit, can be borrowed or
withdrawn on the owner’s request. Since most people make paying their life
insurance policy premiums a high priority, buying a cash-value type
policy can create a kind of “forced” savings plan. Furthermore, the
interest credited is tax deferred (and tax exempt if the money is paid
as a death claim).
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