Why Do I Need Life Insurance?

If you are starting a family, own a home or own a business, purchasing a life insurance policy may be a good idea. If there are people in your life that depend on you financially, a life insurance death benefit can help provide for them if you pass away.

Uses for Life Insurance

Whether you are your family’s primary earner or your loved ones depend on you for domestic tasks and household needs, your family’s financial future and standard of living could depend on a life insurance death benefit.

Many people purchase a life insurance policy to help replace their income or cover funeral costs if they pass away unexpectedly. However, the beneficiary of a life insurance policy can use the death benefit any way they choose.

Other common uses for a life insurance payout include:

Paying off outstanding debts or loans (mortgage, auto financing or credit card)
Covering children’s future education expenses
Paying estate taxes
Financially protecting a business partner

Types of Life Insurance

There are two main types of life insurance policies: permanent and term.

Permanent life insurance policies remain in effect for your entire life (as long as the premiums are paid), and have an investment component that generates cash value.
Term life insurance policies remain in effect for a predetermined term (usually 30 years or less). If the policyholder outlives the term of the policy, the beneficiaries will not receive a payout.

Permanent life policies tend to be more expensive than term policies. You may benefit from a permanent life insurance policy if you have a high annual income and think you will owe a large amount in estate taxes. However, a term policy may be sufficient for your needs.