6 Reasons Why Life Insurance Is Important for You and Your Family

Updated · Nov 17, 2022

Most of us don’t like to think about death, but the fact is that it is a part of life.

And we need to prepare for it just like we do for other significant events in our lives, such as marriage or our children’s education.

That’s why life insurance is important. It allows you to take care of your loved ones without the thought of your inevitable demise weighing too much.

But that’s not all it’s good for.

Here’s a list of the ​​causes you want life insurance coverage.

To Provide Financial Security for Your Loved Ones in the Event of Your Death

Life insurance can protect your loved ones from financial hardship if you pass away.

This is especially important if you have a mortgage, a family to support, or other expenses that would be difficult to meet without your income.

So, how much life insurance should you have to cover all that?

That depends on how you want to help your family. There are different methods for calculating the amount you’ll need.

For example, the DIME method includes your debt, income, mortgage, and education.

In addition, the cost of life insurance depends on factors like your age and health. As such, it is best to think ahead and purchase a policy early on.

To Leave an Inheritance

Even if you don’t have outstanding debts and your family doesn’t need help with ongoing living expenses, life insurance is still a valuable asset.

You can use the life insurance benefits to build generational wealth. The best part is that the payouts are typically tax-free.

That said, there are a few exceptions.

If the amount exceeds the federal estate tax exemption limit, the heir will have to pay taxes. As of 2022, that limit is $12.06 million.

In addition, if the insurance provider pays the benefit in installments instead of a lump sum, they will be taxed as income.

Finally, if the policy owner and the insured person are two different people, the beneficiary will be subject to a gift tax.

To Maintain the Family Income Stable

One of the main reasons why life insurance is important is that it can help your family maintain the same standard of living if something happens to you.

If you are the primary breadwinner, your death will take a toll on your loved ones. Life insurance can be a safety net for them.

To achieve that, you have to calculate how much life insurance is enough to replace your income.

Some experts recommend covering six to ten years. Others suggest multiplying your annual income by the years you have left until retirement.

Another option is to choose a sum that will be enough to provide for your children until they turn 18.

To Cover End-Of-Life Expenses

According to the NFDA, the median cost of a funeral in the US in 2021 was $7,848. Not everyone can afford that.

This is why you ought to get life insurance coverage.

Final expense insurance is designed to help you save up for your funeral, so you don’t burden your family.

These policies usually have a death benefit of up to $35,000. What’s more, they are very affordable and easy to qualify for.

To Protect Your Business

One of the causes you might want life insurance coverage is to preserve your company in the event of your death, an illness, or a disability.

You can get key person insurance with your business partner as a beneficiary. The ​​benefits of life insurance in this case are numerous.

The named beneficiary can use it to maintain operations as usual, pay off debts, or fund a buy-sell agreement.

To Secure Your Retirement

You can use life insurance to support your retirement. It builds cash value over time. You can withdraw money from it anytime.

This can be helpful during your retirement or emergencies. You can use it to make your last years more comfortable and less financially draining on your family.

If you’re still wondering: “Do I need life insurance?” keep this in mind.

Life insurance is different from 401(k) plans and IRAs. Its only downside is the relatively costly upfront investment required.

Other than that, it has several useful applications that retirement plans lack. Best of all, it allows you to withdraw tax-free money anytime.

But keep in mind that borrowing from your policy without repaying the money will reduce the death benefit.

Wrap Up

No one knows when their time will come. That’s why life insurance is important

Among other things, it can be a safety net for your loved ones, cover final expenses, protect your business in the event of your death, and secure your retirement.

It’s a smart investment and a valuable asset.

Better yet, it can help you and your family if anything happens to you.​

Aleksandra Yosifova
Aleksandra Yosifova

With an eye for research, Aleksandra is determined to always get to the bottom of things. If there’s a glitch in the system, she’ll find it and make sure you know about it.