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Life insurance is a way to provide for and protect them financially, making it an important (and often surprisingly affordable) part of a financial plan.
Reaching your goals at every stage of life comes with some financial prep. Think about your biggest financial dreams, like buying a house, sending your kids to college, or planning for retirement.
As you and your family save for these milestones, life insurance can provide protection against the unplanned. If you were to die unexpectedly, a policy would provide your family with a tax-free cash payout they can use for whatever they need. That money can help cover daily expenses, ease financial burdens, and pay for those goals you’ve worked so hard together to achieve. Why is it important to get life insurance? The basic idea behind life insurance is to make sure there’s money left behind after you die to support the people or causes that matter to you. The specific reasons to buy and the best type of life insurance for you depend on your situation.
5 Reasons to have Life Insurance
1. To Ease Stress For Your Loved Ones
One of the most important things to remember about life insurance is that it’s not for you, it’s for them. Think about what would happen to your family if you passed away tomorrow, or next month, or next year. What would your family need to do to stay afloat financially? One in four people say they would feel the financial effects within a month if the primary wage earner in their household died, according to the 2020 LIMRA study.
When you purchase life insurance, you pick a coverage amount, which can range from a few thousand to millions of dollars. If you die while the policy is still active, your beneficiary receives that amount in cash. Your beneficiary is a person you choose to receive the payout, often your partner, your adult children, or another family member. You can choose multiple beneficiaries if you like, and you can update your beneficiary as needed if your situation changes. Life insurance can give both you and your beneficiary peace of mind that money is there to cover some of the common needs below.
2. To Pay Daily Bills
One of the main reasons people buy life insurance is to help their family cover daily expenses, including groceries, utilities, and car payments. According to the 2021 LIMRA study, 63% of people say they bought life insurance to replace their income.
Think about all of the things your income covers. If your paycheck suddenly wasn’t there, your family would need an alternate source of income to pay for all of them. Since life insurance is typically paid out much more quickly than settling an estate, which can take months after death to complete, it can also provide support faster so your family isn’t burdened financially.
3. To Pay for Your Child’s Education
The percentage of people attending college is going up. In fact, about 39% of millennials now have a college degree, compared with 29% of Gen Xers and about 25% of baby boomers. The average cost of college tuition and fees is soaring, too. Today, the annual cost of tuition and fees to attend college is about $41,000 for private colleges, $27,000 for out-of-state students at state schools, and about $11,000 for state residents at public colleges. Keep in mind that room and board, as well as other costs, can push these figures higher.
If college will be part of your child’s future, having a plan to pay for it is critical. And even if your child’s plans don’t include college, they might want to learn a skilled trade or go through another program that needs funding.
With life insurance, you have a financial resource to help protect those dreams. When calculating your coverage amount, consider how many kids you have and the expected cost of schooling for each one. You may need to add in extra, depending on the type of school.
4. To Leave and Inheritance
Want to leave something behind for kids or grandkids to help them reach their own financial goals? Life insurance is one of the easiest and most affordable ways to do it. You can also leave an inheritance to an organization, like a charity. Depending on how you do it, there might be some tax advantages involved as well. Talk to an accountant to make sure you maximize your tax benefits.
5. To Give Your Family More Control Over Their Financial Future
There are plenty of good reasons to buy life insurance, but it’s also important to remember that it comes with no strings attached. Your family can use the money for whatever they need, and the payout is generally tax-free. Every family’s needs are different, and so are their dreams. Ultimately, life insurance provides options – the kinds of options you would have worked to give your loved ones if you were there.