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Why should I buy life insurance?
Many financial experts consider life insurance to be
the cornerstone of sound financial planning. It can be an important
tool in the following situations:
- 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as a death benefit, can be borrowed or withdrawn on the owner’s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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