- Life insurance is often looked at as something of a waste since it is not mandatory, but there are five key purposes to life insurance.
- Income replacement, debt repayment, liquidity, funding, and the most important, peace of mind, are the five key purposes to life insurance.
- Term insurance is low cost insurance which covers you in the event of your death for a certain term; cash value insurance, acts as both insurance and as an investment.
Life insurance is like the proverbial red-headed stepchild, or as Rodney Dangerfield used to say, “I don’t get no respect”. It’s just that way, nobody wants to buy it because it’s a big expense. We are required to buy auto insurance, homeowner’s insurance, and health insurance, but it’s not mandatory for us to carry life insurance, so it seems like a wasted expense.
However, there are five key purposes for life insurance.
- Income replacement – You die, and your life insurance proceeds hopefully take care of needs and replacing your income if you are the income earner for your family.
- Debt repayment – There may be some heavy debts left behind when you pass such as home mortgages, auto loans, and student loans. Life insurance can help pay those off to make life simpler for those who are left behind.
- Liquidity – There are times when you need liquid cash because your circumstances are such that your other sources of cash are not readily available. In those circumstances, liquid cash is very important for family members to take care of nearer term needs.
- Funding – We’ll see funding for buy/sell agreements between small business owners and key person replacement, funding for paying estate taxes upon death, and many other funding reasons.
- Peace of mind – This is probably the most important purpose. Knowing that there will be money upon your death to take care of your loved ones is very comforting.
How do you know how much life insurance you need? It’s not very expensive when you are young, and for most people who don’t have much money, they buy what’s called term insurance. You pay the premiums every year over a specified time frame, typically between 10 and 30 years, and then if you die during that term, the death benefit is paid out.
The second kind, which is more expensive but also more of an investment, is cash value insurance. With cash value insurance, the cash value builds up over time. So, there are wealth building goals and reasons for buying this kind of insurance that you will have for a long time to presumably use later in life to meet some of those goals.
If you want to know if you need insurance or have questions about it, please contact us and we’ll go through your situation to see if you need any additional life insurance to begin with.
Until next time, enjoy! Gary
Learn more about TransformingWealth™ , our proprietary approach, designed to get your arms around the big picture so you can make informed financial decisions. Ask Gary about Coyle’s TransformingWealth Preview Meeting, and schedule a complimentary consultation and start living the Good Life Managed Well™.
Gary Klaben is in our Glenview, IL office and serves our clients who are now located all over the country. He has over 30 years of experience and is the author of Changing the Conversation, The Wealth Sanctuary and co-author of The Business Battlefield. Whether advising his clients, mentoring his team, or coaching entrepreneurs, he is always simplifying complexity and motivating others to take the next action that’s right for them.
We value your comments and opinions, but due to regulatory restrictions, we cannot accept comments directly onto our blog. We welcome your comments via e-mail and look forward to hearing from you.