Every year, millions of people across the United States purchase life insurance. Life insurance can provide a sense of security and financial stability for your family in the event the unthinkable happens. However, there are still many people who don’t get life insurance. The following guide explores why it’s important for all family providers to have life insurance.
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Understanding Life Insurance
A life insurance policy is designed to pay out in the event the policy owner dies. In most cases, a life insurance policy will require an individual to make monthly payments for a certain term. While some life insurance policies are guaranteed for life, others have term limits. For example, many life insurance policies are only valid for 20 to 30 years. After this period of time, they no longer have value.
If an individual with a life insurance policy dies, the beneficiary of the plan will receive a payout from the life insurance company. Most life insurance policies provide several million in coverage for less than $100 a month.
In most cases, it’s a good idea to have a life insurance policy if you have a family. If you are single, your death won’t have a negative financial impact on anyone. However, if you’re the provider for your family, your death could cause significant financial hardship.
With a life insurance policy, your family will be provided with financial security in the event of your death. When choosing a life insurance policy, it’s a good idea to find one that covers the equivalent of 20 to 30 years of earnings. For example, if you earn $50,000 per year, a policy for $1.5 million would cover the equivalent of 30 years of earnings. In the event of your death, your family would be secure for at least this long (depending on how well they are able to budget the money).
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Financial Security for Your Family
The most important time to have life insurance is after your wife becomes pregnant. If you die at this time, it can cause extreme financial hardship for your family. Since your wife is unable to work and raise a child at the same time, they may have to place your future child in the care of a relative or other family member. If this isn’t an option, some mothers may even turn to adoption or abortion, in extreme cases.
As your child grows older, the need for life insurance decreases significantly. By the time your child graduates from college, he or she should be financially independent. A life insurance policy can still be helpful for your spouse at this time, but it’s not necessary anymore for raising a family. Because of this, many people choose term life insurance policies that are designed to expire when all children are over the age of 25.
In most cases, a term life insurance policy is significantly cheaper than a whole life insurance policy. Since everyone eventually dies, a whole life insurance policy will require an insurance company to eventually provide a payment to a widow or surviving spouse. With a term life insurance plan, this isn’t necessary.
It’s also a good idea to consider purchasing salary insurance. If you are severely injured and can no longer work, it can take a significant toll on your family’s finances. Some insurance policies offer plans that will help families pay bills and other costs while the primary breadwinner of a household is unable to work. These plans fall under many different names.
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Other Times When Life Insurance is Needed
Life insurance can also be a valuable tool for business owners. Since many businesses operate with tight liquidity, the death of the owner can have serious ramifications for a company. Studies have shown that up to two-thirds of small businesses fail after the owner has died. Even if a business is deeded to one’s children, this still may not guarantee its success over a long period of time. For example, some business owners may have significant amounts of debt against their name. If they die, creditors may be able to take a company apart in order to meet debt obligations. This can eventually lead to the death of a company, despite the wishes of the former business owner. Many family-owned businesses will use life insurance as a way to protect against significant loss in the event the owner dies.
Conclusion
While you may never benefit from your life insurance policy, it can be one of the most valuable gifts you can provide to your family. If you have a child, it’s important to think about how that child could be impacted if you were to die. If you aren’t around to provide for your family, what will happen to your children? Will your wife have to work and raise children at the same time? In many cases, the death of a breadwinner (without insurance) can have a profoundly negative impact on the future success of a young child and his or her siblings. With life insurance, you can avoid the risk of these potential problems and ensure a secure future for your family.