Insurance Life Insurance

What Are the Benefits of Life Insurance?

Many people wonder, "what are the benefits of life insurance?" Life insurance is a vital part of most people's sound financial plan. Especially if you are younger and just starting out in your career or still in the wealth accumulation stage, you probably need life insurance.

Life insurance, however, often gets overlooked because 1) there's no law requiring it; 2) many people don't like thinking about their own death so they avoid it; 3) it's not "tangible" so people can have trouble seeing its value; 4) when people think about financial matters they prefer to think of their own accumulation, not paying somebody else "just because they die"; 5) some people get offended at the thought of "putting a price on their life", even though that's not at all what life insurance is about.

But with life insurance, you get an immediate estate created for you. You are protecting those you love from the financial effects of your untimely death. You could also be protecting your own legacy if you use life insurance as a "key man" policy on yourself when you own or are a partner in a business, or use life insurance as part of estate planning if you are one of the "rich".

So, you are not trying to pay people just because you die, and I'm sure that they don't want you to do that (if you think they do, you had better re-evaluate your feelings for them!). Instead, life insurance is supposed to be carefully planned out between you and your agent or a financial planner so that you figure out the amount of death benefit that you need to protect your spouse, children, etc from awful consequences of your untimely death. In this regard, most people are underinsured.

The true recommendation is that you carry anywhere from eight to 20 times your current income as your face value on your policy. This may sound extreme, but think about the consequences of your death. After your funeral expenses are paid, your survivors will probably need to replace your income to continue taking care of things. If they can't do that, they might lose their home, they might struggle to afford basic necessities, their lifestyle might be diminished (if you love them you never want this to happen), they might suddenly have creditors hounding them, they might not be able to pay their health insurance premiums, and other dark possibilities.

Many people plan badly with insurance, and sometimes incompetent or inexperienced agents don't help matters. They might plan just to have the mortgage paid off, for instance, and never dream of the necessary income stream (most of the death benefit would be put into a safe interest bearing account that gets a better return than the rate of inflation and some would only get taken out when necessary). Life insurance is not just about your survivors paying for a funeral, paying off the house, or having extra money to "escape" with to forget about your death. It should not be just about immediate considerations, but requires long term planning.

So, the next time you wonder, "what are the benefits of life insurance?", just try dying for a moment.

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