Is Life Insurance?
insurance offers a way to replace the loss of income that occurs when
someone dies (usually the person who produces the majority of income
in a family situation). It is a contract between you as the insured
person and the company or "carrier" that is providing the insurance.
If you die while the contract is in force, the insurance company pays
a specified sum of money free of income tax — "cash benefits" — to the
person or persons you name as beneficiaries.
good life insurance program does more than just replace the loss of
income that occurs if you die. It should also provide money to cover
the new costs that arise after your death — funeral expenses, taxes,
probate costs, the need for housekeepers and child care, and so on.
And these cash benefits should provide for your family's future needs
as well, including college education for your children and part or all
of your spouse's retirement needs. In almost all cases, your
beneficiary can use the cash benefits in the way he or she sees fit,
types of life insurance — permanent life insurance policies — have a
cash value that you can obtain by cashing out the policy or by
borrowing against it. Though it can seem attractive, most financial
experts agree that this feature should be seen as a secondary purpose
of life insurance.
Do You Really Need Life Insurance?
there is someone who would suffer economic hardship if you died, then
the answer is yes... you need life insurance! Families with young
children have a clear need for life insurance. If both spouses work,
the loss of one income will cause the family immediate economic
hardship and make it harder for them to realize future goals, such as
paying for the children's education. But even if one spouse works
"inside the home" and doesn't bring in a formal income, his or her
death will require the surviving spouse to hire child care,
housekeepers and other professionals to help run the household - and
that can be a significant new expense.
are married without children or single, then you may need life
insurance to protect your partner or surviving family members against
the costs associated with your death. Funeral expenses, probate and
administrative fees, outstanding debts, special obligations to
charities, and federal and state taxes are costs that all of us must
consider. And, they can add up quickly. Unless you already have
sufficient financial resources, your survivors will probably need life
insurance to cover these expenses.
What Happens To Your Family If You Don't Have Enough Coverage?
any circumstances, the loss of a loved one is a traumatic experience.
But, if your family is also left without sufficient money to meet
basic living needs or prepare for future goals, they will have to cope
with a financial crisis at the same time. Depending upon their current
financial resources and ability to "get back on their feet"
emotionally and financially, your family might be forced to move to a
less desirable home or community, abandon education and career plans,
reorganize family priorities (such as the amount of time spent with the
children) and, in general, cut back on the quality of life you have
worked hard to achieve.
family might even be forced to go into debt simply to pay the
expenses, like funeral costs, taxes, and medical bills, that result
from your death. A moment's reflection will tell you that the lack of
sufficient life insurance coverage when a loved one dies can have
devastating consequences for a family...consequences that can last for