Well, I am one of the lucky few who gets to talk about death with my clients on a daily basis. But it is really not that morbid. The primary reason we talk about death is so that we can prepare for it. Because those of you out there that refuse to admit you will one day die will also refuse to prepare for that inevitable day—much to the chagrin of your loved ones.
So with that introduction aside, let’s get to the main point of this article: Why YOU need life insurance.
Why life insurance?
First, let’s define life insurance. Life insurance is a contract (i.e. policy) between the owner, typically, but not always, the insured, and the insurance company, called the insurer. The insured takes out a policy from the insurer for the benefit of a beneficiary, typically a spouse or kids. Upon the death of the insured, the insurer cuts a check to the beneficiary in the amount of the death benefit.
Now there are two main types of life insurance. One type is term life which lasts for a specific period of time, or term. Once the term ends, the policy can usually be renewed annually, with increasing premiums.
The other type of coverage is permanent life insurance, such as whole life insurance and universal life insurance. These policy types last until you die and usually, but not always, have a cash value account that grows over time.
So with that basic framework in mind, let’s explore who needs life insurance and why.
The Primary Wage Earner
Who: The primary wage earner, or primary bread winner, is the family’s main income earner. This is the person who brings home the bacon, so to speak. It could be a spouse or you might be a single mom or dad.
Why: If the primary wage earner for your family died unexpectedly today, how much liquid cash do you have to pay your bills, put food on the table, and keep a roof over your head? Life insurance for the primary bread winner is meant to replace LOST INCOME so that those who remain, (spouse and kids), are not left homeless and hungry, but have the money needed to continue on if YOU, the main income provider, died unexpectedly.
The Stay at Home Mom (or Dad)
Who: the stay at home parent is more valuable than most people would think. How much would it cost to have someone watch your children for 10 to 16 hours a day, prepare all the meals, do all the laundry, clean the home, go shopping, take the kids to practice, and countless other jobs? The answer: A LOT.
Why: Consider how much it would cost to hire someone to replace a stay at home spouse. When you consider all that a stay at home spouse does the answer should be around $50,000 or more a year. Therefore, if your spouse stays at home and he or she does not have life insurance, hurry up and remedy this potential disaster.
The Elderly Parent
Who: Grandma or grandpa or an elderly parent who is living off of social security and who has next to nothing saved. Unfortunately, this is an all too true reality for many elderly today.
Why: An elderly parent or grandparent who has no savings and is on a shoe string budget will not have the necessary funds to cover a typical burial. Rather than go the route of a GoFundMe campaign to raise money for a funeral, having a small final expense or burial life insurance policy will provide a little something to cover those expenses at death. The average budget funeral today runs at least $5,000. In another ten years that number will be closer to $7,000. Instead of coming out of pocket, make sure grandma or grandpa have coverage in place.
The Business Owner
Who: the business partner who has no exit strategy in place. If you are a business owner and you have put off thinking about your exit strategy, now is the time to get real and think about what would happen to your business if either you or your business partner died today.
Why: The majority of businesses do not have a proper exit strategy in place. A proper buy sell agreement funded with life insurance is a fantastic way to prepare for the unexpected. The policy will provide the needed cash to keep the business running while waiting on a replacement or a buyer. Otherwise, the business may fold and all your hard work, and legacy, will amount to zilch.
There are a myriad of other people who were not mentioned here, such as the college student who had his or her parent co-sign on their student loans, or the investor who has all their money tied up in real estate, or the high net worth individual who would pay a huge tax bill. The reality is, most (if not all) people need life insurance. And when you take into account the advantages of cash value life insurance, the need only increases.
Photo: Pictures of Money