Many financial
experts consider
life insurance to be
the cornerstone of
sound financial
planning. It can be
an important tool in
the following
situations:
Replace income
for dependents
If people depend
on your income,
life insurance
can replace that
income for them
if you die. The
most commonly
recognized case
of this is
parents with
young children.
However, it can
also apply to
couples in which
the survivor
would be
financially
stricken by the
income lost
through the
death of a
partner, and to
dependent
adults, such as
parents,
siblings or
adult children
who continue to
rely on you
financially.
Insurance to
replace your
income can be
especially
useful if the
government- or
employer-sponsored
benefits of your
surviving spouse
or domestic
partner will be
reduced after
your death.
Pay final
expenses
Life insurance
can pay your
funeral and
burial costs,
probate and
other estate
administration
costs, debts and
medical expenses
not covered by
health
insurance.
Create an
inheritance for
your heirs
Even if you have
no other assets
to pass to your
heirs, you can
create an
inheritance by
buying a life
insurance policy
and naming them
as
beneficiaries.
Pay federal
“death” taxes
and state
“death” taxes
Life insurance
benefits can pay
estate taxes so
that your heirs
will not have to
liquidate other
assets or take a
smaller
inheritance.
Changes in the
federal “death”
tax rules
between now and
January 1, 2011
will likely
lessen the
impact of this
tax on some
people, but some
states are
offsetting those
federal
decreases with
increases in
their
state-level
“death” taxes.
Make significant
charitable
contributions
By making a
charity the
beneficiary of
your life
insurance, you
can make a much
larger
contribution
than if you
donated the cash
equivalent of
the policy’s
premiums.
Create a source
of savings
Some types of
life insurance
create a cash
value that, if
not paid out as
a death benefit,
can be borrowed
or withdrawn on
the owner’s
request. Since
most people make
paying their
life insurance
policy premiums
a high priority,
buying a
cash-value type
policy can
create a kind of
“forced” savings
plan.
Furthermore, the
interest
credited is tax
deferred (and
tax exempt if
the money is
paid as a death
claim).
