We
are often told we need to get life
insurance and we always have a sense of
the need for it but what exactly can the
benefits of term life insurance be used
for? People know they need it but not
always what they need it for.
Let's take a look at some of the common
uses for term life insurance coverage.
First, we'll start with some of the big
ticket items. Unless you are
independently wealthy (in which case,
you're probably at the wrong website),
you're like most Americans in that after
a few month's of no income, you would be
underwater financially. Really
think about how long your family could
go if a primary income suddenly
disappeared. Most people have some
assets but these would quickly be wiped
out if a major source of income were to
vanish. This is a key use of term
life insurance...to replace missing
income. This is also why the
amounts of term life insurance tend be
big numbers. It takes a lot of
money to cover years or decades of lost
income. You can use our
term life
planner to evaluate what an ideal amount
is.
Somewhat connected but from a different
angle is the use or need to pay off
large debts such as a mortgage. To
some extent, you could tie this in with
the income loss since you would usually
pay off the mortgage over decades with
that income but there's the added value
that a paid off asset has value, can be
sold, or borrowed against.
Uses involving a business are also a
viable application of term life
insurance. If the deceased was a
partner in a business, the term life
benefits may allow the
insurance
beneficiary to buy out partners to take
control of the company. The term
life benefit could also pay off business
debts or allow the time to find a
replacement. This is sometimes
called a key-person policy but from a
different angle.
Final expenses are a commonly unforeseen
if not as big use of term life
insurance. Final expense can
involve those incidental expenses
associated with the passing of the person.
This could include funeral, travel
expense, family related costs, and many
others. These expenses can quickly
add up to 10's of thousands of dollars.
It can also include debts (personal or
not) that the deceased had at the time
of death. Debts to family members which can be
very contentious.
The government doesn't just tax the
living. There can be significant
taxes under the delightful heading of
death taxes on both a federal and state
basis. Not only are life insurance
benefits usually not subject to death
taxes, but they can be used to pay off
other taxes for assets that are
unfortunately not shrouded in the tax
protective shield of term life
insurance.
These are some of the key uses of life
insurance and due to the affordable cost
of term life insurance, it's very
inexpensive to cover all of these needs.
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