If you’re one of those people who don’t think they need life insurance, think again. There are very clear benefits for purchasing a life insurance policy, besides getting rid of annoying insurance agents (who are often our relatives or friends). Remember that the money generated by your life insurance policy when you finally go six feet under can address a number of fundamental needs of your surviving family:
1. It provides income while your family is adjusting
When an income provider dies, there is a significant impact on the finances of the surviving family. Family income will certainly diminish and there’s a good chance that the survivors will experience a lower standard of living. However, the death benefits of a life insurance policy can prevent this from happening or at least keep the impact to a minimum by replacing income lost with the demise of the breadwinner. That is why it is crucial that the insured is adequately protected to ensure that the surviving family will have financial support during the period they need to reconcile with their grief, get back on their feet, find other sources of family income, and adjust to their new income level.
2. It funds specific financial goals
In addition to providing survivors with income, proceeds from a life insurance policy can also provide funds to achieve specific goals that the insured may have planned for his family. These goals could include accumulating funds for college education of the children, the purchase of a home, or capital for a business. Since the breadwinner is no longer around to save for these financial goals, a portion of the death benefits of his life insurance policy can be set aside to provide for the necessary funding.
3. It covers medical and funeral expenses
It is very likely that the insured will incur huge medical expenses prior to death. A protracted illness can easily run up to several hundred thousands or more than a million. Funeral service, even the most basic one, is also not something to sneeze at. Adequate life insurance proceeds ensure that these final expenses are well taken cared of.
4. It pays for taxes and debt
The insured may leave behind debts that need to be settled. If he has amassed a sizeable estate, taxes can become a big headache. Before the assets can be distributed to the heirs of the deceased, property and inheritance taxes and other fees will have to be paid. Life insurance benefits can provide cash for the settlement of such obligations. If cash is not available, the heirs may have to sell some or most assets (possibly below market value) to pay promptly the tax dues and other debts. Failure to settle these on time can lead to hefty penalties or worse, the survivors will forfeit ownership of the estate. An adequate life insurance will make certain that your estate is preserved and stays with the family who will praise you in the afterlife for taking care of their wellbeing.
This article is from is MoneySense, the country’s first and only personal finance magazine. You can read more financial tips and stories at www.moneysense.com.ph.