Why is life insurance important?
Editor's note: September is Life Insurance Awareness Month. This article provides a primer on life insurance for your clients and explains some of the ways it can benefit them and their families.
Life insurance policies are important because they provide many options for debt repayment, income replacement and estate planning for your family. Without a life insurance policy, your death could spell financial disaster for your heirs and could hurt their financial future.
There are many reasons why people do not buy life insurance. One reason is lack of education. They just do not understand it. Another reason is that they think that it is costly. Certainly it will cost more if you buy it when you are much older; however, it is much cheaper if you buy while you are younger.
I am of the belief that an educated consumer is a better client. The more my client knows about a specific product or service, the easier it is for me to help them find the best solution to their problems.
I will give you a bit of information which should help you understand how it can help you protect your assets and your family.
Before we get more into life insurance, let’s look more generally at insurance. Insurance is a form of risk management. One pays a small amount to a company that promises to cover the costs of a future catastrophe. Insurance financially protects households by creating a large pool of people who pay into a fund, which in turn pays out to the comparatively small number who, through chance, need financial help due to a disaster. In other words, you buy insurance to protect against the risks that something will go wrong. Believe me, something will go wrong.
Many of us have experienced the loss of a loved one. Whether it is an immediate family member, or a good friend, we usually grieve for the loss and then end up hurting more when we are faced with the financial burden that comes later. How many times have we become involved in a collection of funds for the surviving family in order to pay for the costs related to a loss? It is devastating enough that we lost someone, and now have to concentrate on the things that should already be in place. Families needn't be burdened with these financial burdens when we are gone. Protect your family.
There are five major reasons for a person to secure life insurance:
- protecting the income stream of the family (maintaining standard of living)
- providing liquidity at the insured’s death
- providing a source of retirement income
- funding the children’s education
- creating or sustaining family wealth
Life insurance policies often help cover the costs of funerals, which, on average, cost between $7,500 and $10,000 in the United States. In addition, life insurance helps with paying off debt, income replacement, estate taxes and much more.
Life insurance can go beyond just providing liquidity, maintaining a standard of living and caring for the needs of children. Oftentimes, life insurance can be used in estate wealth maximization and preservation. Individuals who wish to create pools of capital for future family members such as grandchildren, great-grandchildren, and so on may use planning techniques such as dynasty trusts, generation skipping trusts and foundations.
It is important to know that life insurance is used very broadly in combination with other investment and asset protection products. There are many different types of policies and it is important to educate yourself before buying any particular one. One of the ways is to go online and research. Another is to ask a reputable insurance agent. Most insurance companies offer a variety of products. Be aware of those insurance agents/brokers who try to push only one product. Not every product is suitable for everyone.
Insurance agents work under two main contractual agreements: captive and non-captive.
A captive agent can only sell the products offered by the company for which they work, while a non-captive agent, usually an independent broker, can work with many companies at once and can offer products from any of those companies; hence providing a broader variety of products that can fit your needs.
I hope I was able to shine a bit of light on the importance of insurance and specifically life insurance.
Protect your family. Start now!! If you wait, it can be very costly.