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Why Life Insurance Should be Part of Your Financial Plan
“On behalf of the family for the passing of my angel…when speaking with her husband and mother I was informed they did not have insurance. We are all devastated and lost and are reaching out to our family and friends to ask you to pray about the funeral details…”
This appeal appeared on Facebook last week. What followed was a series of somber pleas to family and friends for donations to a fund set up at a local bank. More than a week later, the funeral has yet to take place while survivors scramble to pay for the burial.
This family is not alone. A 2010 study revealed about 30% of U.S. households have no life insurance and four in 10 households with children would have immediate trouble paying bills if the primary breadwinner died today (LIMRA).
None of us wants to think about our own mortality, but we must if we don’t want to leave our loved ones with a financial catastrophe.
Here are six reasons life insurance should be a key element of your personal financial plan:
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.
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.
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.
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).
To learn more about what types of life insurance may be right for you and your family, contact Allen & Furr.