To put it simply, life insurance protects those who depend on your paycheck. In the event of a premature death, life insurance provides your dependents with ongoing income to replace yours, until (or unless) they are able to live comfortably without it. It can also provide a timely emergency fund for medical, legal, and funeral costs.
Life insurance is not a good way to strike it rich for "pennies on the dollar." It's not the surest way to leave a life of luxury for future generations either. In fact, even though some life insurance policies are combined with a savings plan ("Cash Value" Policies), the savings plan is essentially independent. The life insurance component of these cash value policies retains its fundamental purpose: income protection for your dependents.
Given this simple definition of life insurance, consider asking yourself these questions:
Could your family afford the funeral expenses? Have you left a complicated will, or perhaps no will at all? More importantly, what about your spouse, children and other dependents? Are they counting on your paycheck in the years ahead to cover basic needs and/or future savings goals?
If you are single, or one-half of a two-income, no-dependents household, you probably won't need as much life insurance as you would otherwise. With a little planning, you can establish a low-risk savings fund to cover funeral costs, and invest the money you would have paid for insurance premiums. You may also want to obtain coverage that will pay the estate taxes on a huge estate so that your heirs do not have to liquidate assets at unfavorable prices to pay them. If you are current (or believe you will in the future) be a successful investor, then you may be a prime candidate for such life insurance. These issues can get complicated and may be best left to a discussion with an estate planning attorney.
On the other end of the spectrum, if you are the sole breadwinner for a large family with little savings, you are likely to need substantial life insurance. After basic food and housing is covered, life insurance premiums are likely to be next in line in terms of priority, perhaps even ahead of auto loan, credit card payments and retirement savings.
Protecting your family's future financial security is of prime importance!
What is Life Insurance For:
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