Have you been considering purchasing a life insurance policy? Maybe your partner, parent, or even your child has been pushing the importance of life insurance and encouraging you to invest in the peace of mind that only life insurance can provide.
Sure, you’ve thought about it, but you’re still not quite sure why life insurance is so important.
If you’re pondering the question, “Why do I need life insurance?” just think about those who depend on you. Where would your spouse and your children be financially if your time on earth suddenly came to an end? Would they be able to make ends meet?
There are also misconceptions about life insurance that may be the reason you haven’t purchased a policy quite yet. Maybe you’ve heard that coverage is expensive, you think your employer provides all the insurance you need, or it’s too late for you to get a meaningful policy.
The fact is that these myths often lead people away from an important financial tool that could offer benefits that just about everyone needs. In fact, according to LIMRA , a non-profit organization, only about 52% of adults have some form of life insurance. Chances are that misconceptions are the reason that the other 48% remain uninsured. Read on to answer the question, “Why is life insurance so important?”
Understanding Life Insurance: Basics and Purpose
By definition, life insurance is, “insurance that pays out a sum of money either on the death of the insured person or after a set period.” But that definition is rather bland and doesn’t imply the real benefits of this type of insurance.
Ultimately, coverage is about much more than a death benefit. It’s about ensuring that your family is financially secure even if you’re not there to provide that security. When you filled out your tax documents, how many dependents did you include?
Those dependents are there because they depend on you.
Your spouse and your children will likely have a hard time making ends meet without your income. Moreover, you have to consider other areas where you add value outside of your paycheck. For example, will your spouse be able to take on the added expense of daycare if you’re not there to keep an eye on your children?
You should consider factors like these as you buy life insurance. Ultimately, your life insurance isn’t for you; it’s for your beneficiaries. Consider the financial voids that will be created when you die and the coverage amount you need to fill those voids.
Key Reasons to Buy Life Insurance
Have you been asking yourself the question, “Why do I need life insurance?” If so, there are several valid reasons to purchase a policy. Continue reading to find out why it’s important to buy life insurance.
Easing Financial Stress for Loved Ones
You go to work every day to support your family. Unfortunately, there’s a strong chance that those who depend on you would feel financial strain relatively quickly if you were to die. But they don’t have to.
This is one of the biggest reasons life insurance is important.
Life insurance is designed to provide your loved ones with financial support after your death – support that can act as an income replacement should it be needed.
When you purchase life insurance, you choose a coverage amount. That coverage amount typically varies from a few thousand dollars to a couple million dollars. If you die while your policy is active, your beneficiaries receive a check for your death benefit, replacing the income you would have otherwise brought into your household.
Covering Daily Expenses and Bills
The vast majority of people who purchase life insurance do so as a means of income replacement when they die. The simple fact is that your family faces many day-to-day expenses. Everything from food to clothing, school supplies, and gasoline comes with a cost.
When you pass away, your family will lose your paycheck. Sure, they may be able to look forward to pensions, social security, or other benefits, but those benefits may take some time to kick in, leaving your loved ones to struggle financially until they do. When these benefits kick in, they may not be enough to maintain your loved ones’ current lifestyle.
Life insurance is important because it offers rapid access to funds for your family in the event of your death. Moreover, you can adjust your coverage to ensure it meets all of their financial needs.
Protecting Family Home and Settling Debts
Life insurance is also an option for protecting your family home and your estate. When you pass, lenders will look to your estate to settle any outstanding debts you might have. If you’re unable to pay those debts through your estate, any co-signers will have to pay them for you.
Moreover, say you die with $50,000 in debt and only $30,000 in liquid assets. In this case, your heirs may be forced to sell your family home to cover the difference.
In a worst-case scenario, if you still have a mortgage on your home, it could go into foreclosure if you don’t have life insurance to cover it. Help your loved ones avoid this hardship by purchasing life insurance to cover any outstanding debts you might have.
Funding Education for Children
As a parent, you want to make sure your children have a leg up in this world, including access to the best education. Unfortunately, education costs are soaring. If you’re not there to help, your children may not be able to affordably access a college education.
This is yet another reason life insurance is important.
Simply get accurate estimates for how much money it will cost to send your children to college. Then, make sure to bake that cost in when you’re considering your life insurance coverage amount to help secure your children’s successful futures.
Safeguarding Small Businesses
If you’re a business owner, you’ve likely worked extremely hard to build a brand that will stand the test of time. Unfortunately, if you’re not there to operate your company, it may take on increased expenses, making it difficult for your company to stay afloat.
Your life insurance death benefit can help with that too.
Your heirs can use the death benefit of your life insurance policy to hire experts in your industry and keep your business alive long after you’ve passed. Not only can this give your loved ones a source of income, but it could also keep your legacy alive for years to come.
Ensuring a Secure Retirement
Life insurance isn’t only valuable, because of its death benefit. Your life insurance policy can help you throughout your retirement. That’s because some life insurance policies build value as you pay into them.
When you retire, if you find yourself in need of a large influx of cash, you could tap into the cash value of your policy either with a loan or by surrendering your policy. Moreover, you can add riders to your policy to help you maintain coverage in the event of unexpected situations.
For example, you can use the waiver of premium rider to cover the cost of your insurance should a qualifying event mean you’re no longer able to. You could also use the guaranteed insurability rider to ensure you have access to insurance after your term no matter your age or health condition.
Providing Cash During Lifetime
As mentioned above, life insurance can help you access cash you may need during your lifetime. That is, as long as you have whole life insurance. Policies like whole and permanent life insurance build cash value every time you make a premium payment.
This often comes in handy when unexpected expenses rear their ugly heads during your retirement years.
For example, say you’ve retired and you’re on a fixed income, but your home’s roof is aging. When it’s time for a new roof, you can access the cash value in your insurance policy to cover that expense. The same goes for any other surprise expense you may need a significant influx of cash to cover.
Covering End-of-Life Expenses
Final expense insurance is also an important part of life insurance. The reality is that everyone incurs expenses as they near death and following death. Hospice care through the final month of life costs tens of thousands of dollars on average. Moreover, the average funeral costs $6,971 without a viewing and $7,848 if a viewing is involved.
The simple fact is that if you don’t plan for these expenses before you die, those you love will likely have to foot the bill in one of two ways:
- Your loved ones may be forced to pay out of pocket for any burial or funeral services they plan to have on your behalf.
- Your loved ones may pay for your funeral expenses through your estate, reducing any inheritance you left behind for them.
Moreover, when it comes to your end-of-life medical bills, if you don’t have an insurance death benefit to cover them, your estate will likely pay them. That means there will be less left over for your loved ones in the end.
Life insurance can help cover these expenses.
Leaving an Inheritance and Legacy
You don’t just want to leave behind pictures when you die. You want your legacy to extend far beyond that. If you’re like most people, you want to leave your children and other loved ones something of monetary value to remember you by. Moreover, you may want to leave a legacy of giving and charitable contributions behind.
Life insurance can help you do just that.
What’s more, life insurance benefits aren’t taxed as part of your heirs’ gross income. Instead, life insurance comes with tax advantages. If you transfer the ownership of your life insurance policy to an irrevocable life insurance trust (ILIT), your death benefit becomes tax-free for your heirs.
Granting Control Over Financial Future
Life insurance gives you control over the financial futures of those you love. Without life insurance, you may have to worry about your loved ones and how they’ll make it in your final days. However, when you have a life policy, you can rest assured that your family will have everything they need to make ends meet, regardless of the loss of your income.
Ultimately, no matter what type of life insurance you purchase, plans are typically very flexible.
When you get life insurance, you can make sure that your family is empowered to not only pay the bills, but enjoy living the same quality of life you provided for them throughout your lifetime. You can also empower your children to seek higher education without financial boundaries and more.
Common Myths and Barriers
Unfortunately, widespread misconceptions are the reason many people don’t get life insurance. The ideas that life insurance is overwhelmingly expensive or that a savings account is somehow a replacement for life insurance have misled many. However, when you understand the truth about this type of coverage, you’ll realize just how effective it actually is.
Misconceptions About the Cost of Life Insurance
One of the biggest misconceptions that revolve around the life insurance topic is the idea that coverage is too expensive for the average person to afford. That couldn’t be further from the truth.
The truth is that a 35-year-old man in good health can access 30 years of $500,000 in term life insurance with a 30-year term for about $50 per month. The same person could access 30 years of $250,000 in term life insurance for around $30 per month.
The simple fact is that term life insurance premiums are very affordable. Permanent life insurance may be more expensive, but is also highly affordable. Moreover, when you compare the cost of insurance to the benefit, you might be surprised at how inexpensive these plans can be.
Comparing Life Insurance to Savings
Many people don’t purchase life insurance because they feel as though a savings account is a decent substitute for coverage. That’s a dangerous misconception for multiple reasons:
- You Never Know When Your Time Is Up: It’s impossible to know when you’re going to die. Death often happens abruptly. If you depend on savings as a way to leave something behind to take care of those you love, you may not have enough time to save a meaningful amount of money. Life insurance guarantees your death benefit no matter when your time comes.
- You Can Access Your Savings: It’s easy to tap into your savings account when unexpected expenses arise. This could cut into the money you planned on leaving behind for your loved ones. Although some life insurance policies have a cash value, it’s much more difficult to tap into your benefits. So, life insurance provides a higher level of confidence that you’ll have something to leave your loved ones when you pass than a savings account can.
Relying Solely on Employer-Provided Coverage
Many employers offer life insurance as part of their employee benefits packages. That’s great news if yours does, but it’s often limited coverage. Employers that offer life insurance as a benefit typically only cover the cost of coverage equal to your annual salary. Sure, that may sound like a lot of money, but in the grand scheme of things, your family will likely need a lot more.
Many experts suggest that you should have somewhere between 10 and 12 times your annual salary in life insurance coverage. For example, if you earn $50,000 per year, you should maintain a life insurance policy with a $500,000 or higher death benefit.
Sure, it’s worth counting the life insurance coverage your job provides as a benefit in the coverage equation, but chances are you’ll need more insurance than your employer provides. So, it’s a good idea to consider buying life insurance on top of what your employer provides.
Addressing Perceived Time Constraints
There’s a widespread myth that you have to be young to qualify for life insurance. The myth suggests that once you reach 45 or 50 years old, life insurance isn’t worth the premiums anymore. However, that couldn’t be further from the truth.
It is true that as you age, life insurance premiums will rise. It’s also true that it’s best to lock in lower life insurance premiums earlier in life.
However, it’s still worth purchasing a life insurance policy later in life.
The bottom line is that life insurance benefits are typically worth far more than the premiums you pay to access them. As long as you’re under 80 years old and in decent health, chances are you qualify for an effective life insurance policy.
Accessibility and Convenience of Life Insurance Services
Finally, many believe that life insurance just isn’t accessible to them for one of three reasons:
- Their Age: As mentioned above, many are under the misconception that their age will hold them back from coverage. If you’re under 80 years old, you likely have access to life insurance.
- Their Health: You may believe that common health conditions like high blood pressure or diabetes may disqualify you from accessing life insurance. That’s not the case. Although some health conditions may increase the cost of your premiums, most common conditions aren’t a barrier to life insurance.
- Convenience: Some health insurance requires a medical exam. Those who work a nine-to-five schedule may feel as though there’s no convenient time to complete their medical exams. The truth is that there are plenty of no-medical-exam coverage options. Moreover, if a medical exam is required, the examiner will likely be willing to make a home visit at a time that’s convenient for you.
Protect Your Loved Ones With a Life Insurance Policy
No matter what misconception has had you on the fence about life insurance, it’s time to put it to rest. The reality is that there is no better way to protect your family from financial hardship as a result of your death than life insurance. Consider buying life insurance to secure the financial future of your loved ones.
Ready to take the next step?
The Fidelity Life team is here and ready to help you make the right choice for your family. Get your quote online or call one of our agents at (844) 209-6398.
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