Reasons to Have Life Insurance

Reasons to Have Life Insurance
La principal razón para contratar un seguro de vida tener tranquilidad

Although everyone hopes they'll never need life insurance, the reality is that almost all of us should have it, and the sooner we purchase a plan, the better.  It is an important tool in affording us the peace of mind of knowing that money won’t be a problem for our successors after we pass. 

In this article we will review the main reasons for purchasing life insurance. You should consider which are the most important to you and remember, if you don’t already have life insurance, it’s best not to wait any longer to buy a policy.

Article Contents

Why Should I Purchase Life Insurance?

Life insurance offers what very few things can: peace of mind. It gives you the security of knowing that your loved ones and personal matters will be taken care of when you die, and that they will have the money to help deal with your loss.

Peace of mind is the most important reason to have life insurance, but there are also many other motives. According to the well-known website Statista, which specializes in providing information using statistics of all kinds, the main reason people in the United States gave for purchasing life insurance in 2017 was to pay for funeral costs. This is important because no one wants to be a burden on others when they pass. In the United States funeral costs (also known as final expenses) are high, averaging between $7,000 to $10,000. If you are interested in purchasing insurance to cover your funeral expenses, there is a product specifically for this, called final expense insurance.

  • Covering your children’s expenses. Children are the main concern for all families. What would happen to them if one (or both) of their parents were not around? Ensuring their stability is one of the top priorities of people who are looking to purchase life insurance. And, in these cases, insurance companies offer many possibilities, like term life insurance, which can be purchased for a specific period of time, like while your children are young or until they finish college.
  • Pay off debt. Many people buy life insurance because they want the money from the payout (death benefit) to be there to pay off any debt that they may have upon their death, such as a mortgage or loans. This will allow your beneficiaries to cover them with the money they receive, ensuring that your heirs won’t have to worry about paying them.
  • Replace a spouse’s income. If you or your spouse dies, the surviving spouse will surely have difficulties in maintaining the same quality of life without the income that the person who passed away contributed to the family. Life insurance gives you the peace of mind of knowing that they will be able to replace the income that is no longer coming in. Some policies even allow you to insure both spouses without having two separate policies.
  • Supplement insurance provided by your company. Many people think that the insurance provided by the company you work for is enough. But this is not the case. Corporate insurance doesn’t usually offer a very large payout. And their main weak point is that they are not portable. If you change (or lose) your job, you also lose coverage. This is why it is important to have your own policy that covers you regardless of your employment.
  • To save and invest. Some life insurance plans, specifically certain modalities of insurance known as permanent life insurance, include important savings components. Part of your premiums is allocated to savings—or stock market investments—transactions which allow the policy-holder’s savings to grow. In addition, by definition, all permanent life insurance plans generate what is called cash value over time, money which can be transferred to the policy-holder at a certain point.
  • Tax savings. Many insurance plans have tax advantages. Those that offer extra income, such as cash value, allow you to pay differed taxes on this money, which saves you on tax payments. In addition, money that is collected as a payout is also tax-free.
  • To avoid legalization issues. In addition to being tax exempt, the products of a life insurance policy are not required to go through legalization processes, or probate, for inheritances unless you decided to leave your policy and payout as part of this inheritance. Otherwise, even if you have named a trust, this money is not considered as part of the assets that are subject to succession procedures, and can be quickly transferred to the beneficiaries.
  • Guarantee the integrity of your business. A good way to use the payout from a life insurance policy is to keep your business afloat after your passing. This money will keep it going until your heirs can handle or sell it.
  • Because it’s affordable. In comparison with the benefits it offers, life insurance isn’t as expensive as you might think. Though you are required to pay premiums that, in the short term, might seem expensive, you have to think about the long-term. As the years pass, your income will increase, but the premiums will remain stable, making them seem less expensive, or even affordable. Remember that the younger you are when purchasing the policy, the lower the premiums will be and the more benefits your policy will cover.

As you can see, there are many good reasons to purchase a life insurance plan, yet all of them come down to one thing: protecting your successors and beneficiaries. Consequently, all these reasons are based on the fundamental motivation of love for the people who are most important to you.

How does Life Insurance Work?

If you’re already familiar with the advantages of having life insurance, don’t hesitate to reach out to an insurance agent to purchase one. You can also do it online, or a combination of both. Regardless of how you decide to do it, you should be clear on the basic elements of how life insurance works. Some of the main considerations are:

  • Rating. When you apply for life insurance, the insurance company requires you to go through a qualification period to decide if they will grant you the policy or not. The process includes medical exams and a series of questions to evaluate your lifestyle habits. If you are young and in good health and don’t have habits or behaviors that represent a serious risk, then the insurance company won’t have any problems accepting you. On the other hand, as the years pass, the qualification process becomes more complicated due to the simple fact that the risk that you may die increases. This is why it is important to purchase life insurance when you are young. You save money and won’t have problems getting coverage.
  • Premiums. This is the money you pay each month for your insurance. They generally remain stable, which means you will always pay the same rate. To achieve this, the insurance company will make you pay more at the beginning when your risk of dying is low. This increase over what the actual risk assumed by the company allows them to keep premiums low during the last part of the life of the plan when you are older and your risk is very high.
  • Cash value. As you pay these premiums, you accumulate money that in principle will become part of your payout. But with this amount you spend, the insurance company generates savings and profit. At a certain point, they are required to hand over this excess money generated by savings to you in cash. This is money that you can use as you wish.
  • Guaranteed Payout. When you pass away, someone will receive the money from the payout or death benefit. These people (or entities) are the beneficiaries. You can name as many as you wish, and subsequently change them, or name substitute beneficiaries if the main beneficiaries pass away before collecting.

Types of Life Insurance

With these elements, your policy can start working. As long as you pay for the policies, they coverage remains in force, and if you die, there will be a payment that is almost automatic. The duration or term of this policy allows you to classify insurance into two types: term and permanent.

  • Term life insurance. These are policies that have a set term, which can be five, ten, twenty, or thirty years. They are more affordable and allow you to purchase a plan to cover specific periods of vulnerability, like when your children are young or attending college. Find out more about term life insurance.
  • Permanent Life Insurance. These policies never expire. From the moment you purchase them, they enter into effect and are active until the policy-holder’s death. There are four different types of permanent life insurance: whole life, universal life, variable, and variable universal life. All four types offer savings components, though some are more simple than others. [Find out more about permanent life insurance plans].
  • Other life insurance plans are those that you are required to sign upon taking out a mortgage or loan, and plans that have the exclusive purpose of covering your funeral costs.

Now that you know how life insurance plans work and what kinds there are, you just have to think about your personal reasons for purchasing a policy. We have surely given you at least one reason to purchase life insurance and bring some peace of mind to your future.

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