Most people are under the wrong impression that they do not need to take life insurance seriously until they get a bit older and have to provide for their family. It is common for people to not take life insurance seriously, even as they get older and keep it out of their financial plans for most of their lives. Some people, especially millennials, believe that life insurance is very expensive and as a result, they prioritise other financial obligations over life insurance.
The parameters that one should look for in life insurance is quite similar to those that must be evaluated in other types of insurances, such as choosing the right life insurance policy and the amount of coverage that it provides. You may have to decide which circumstances you want your life insurance policy to cover. There are many people who are unaware of the ways in which life insurance can be used as a financial planning tool.
When You Begin your Family
It is popularly believed that the only purpose of taking out a life insurance policy is to provide for your family in case something unforeseen occurs and your family must survive without you. In the event of your untimely death, life insurance policy will replace the income that you would have otherwise earned for your family to help them meet their daily living expenses such as car payments or mortgages. Life insurance will also provide for the educational expenses in case you have young children.
A Complicated Family Situation
If your family isn’t traditional and the family dynamics are complicated then life insurance may be a necessity. If you have remarried and want to provide for your children but at the same time provide for your new spouse also then you may have to purchase life insurance policy. In case you have children from multiple marriages, life insurance will make sure that your children are equally provided for upon your death. Life insurance policy is an effective way to distribute wealth equally among different family members.
Estate Tax Liabilities
Depending on the size of your estate, your estate may have to pay taxes when it is transferred to your heirs. Some people buy a life insurance policy with the intention of funding this liability. Using life insurance you can create a cash reserve which can be utilised to pay for the potential taxes and the various expenses which you may have to incur upon death. One cannot rely on assets such as property or valuables which cannot be easily converted to cash.
You Own a Business
Life insurance can be useful in a number of ways if you own a business such as providing for the ongoing survival of the company. From the perspective of succession planning, life insurance can be used to fund sale or purchase arrangements, make financial provisions for the heir who will not be receiving a share of the family business when you pass on the legacy.
You can also offer life insurance as a part of your overall benefits package to retain and attract talented employees. Over the course of your life, what you expect from your life insurance will change depending on how your family dynamics and financial circumstances change. It therefore becomes important to consult with your financial advisor from time to time to make sure you are appropriately covered. Purchasing life insurance will definitely be less expensive when you are healthy and young and therefore it is a good idea to start planning early in life.
Forced Savings
Taking out a life insurance policy is a great way to save money for the future. For people who have a lot of difficulty in saving money regularly can purchase a life insurance policy as it is an excellent way to save a minimum amount of money each month or quarterly. An advantage of saving money through a life insurance policy is that your health is covered at the same time.
Each person must make efforts to protect their finances and future and therefore put provisions in place to safeguard their interests and also those of their loved ones. You may also have to figure out answers to questions such as how much does a Will cost and which life insurance policy would be suitable for your circumstances to ensure your family are protected, even when you’re gone.
