Why Do I Need Life Insurance?

Life insurance can be a very powerful tool in estate planning, particularly for those parents with minor children (children below 18 years of age). It also benefits people with dependents such as their spouse or disabled heir.

In addition, life insurance provides immediate cash upon demise of an individual. The proceeds are the most needed resources to pay off the deceased's debt, income tax, estate tax and funeral expenses.

Life insurance may not benefit those people without minor children and dependents. When you decide to buy insurance, you have to know the real reasons of buying it. You should choose the kind of insurance which suits you the best.
 

For Long-Term Coverage


To identify if there are really needs to purchase insurance as a financial assistance solution for your family, you should consider the following questions:

How many persons depend on your income to live on?

The answer could be from "one" to "several". Then you need to plan how you want to cover them. If you look around and see none, then you may not need it.

What is the amount of money needed as living expenses for your dependents?

This could be the income you bring home on a regular basis. You should then deduct the value of property they are going to inherit from you and also amounts from public sources as well as private insurance policies that are available to them. Other items to be subtracted could be Social Security benefits, pension schemes, group life insurance policies and so on.

How many more years to go before your dependents become self-sufficient?

You do not need to prepare much income if your children is about to graduate from the colleges compare to those have younger children in the family. Also, you may take into consideration of your dependent spouse going back to work at some point. Your children may obtain partial scholarships as well.

After going through this exercise, you have a general idea whether you need life insurance. You will come to an amount of life insurance that make sense and affordable to you.
 

Life Insurance for Short Term


Do you need life insurance for short-term coverage? Ask yourself the following questions: -

What are the assets to cater for immediate financial needs of your dependents upon your demise?

Cash in joint bank accounts, joint ownership marketable stocks could be some of the highly liquid assets available to your dependents. Are they enough while waiting for your estate to be unfrozen?
The more assets which will avoid probate, the less you need life insurance for short term. On the other hand, if the majority of your assets will be going through a probate, which normally lasts from months to years. Then life insurance will do your inheritors or dependents a great favour by providing them immediate cash upon your demise.

Is your estate subjected to debts and taxes upon your demise?

If your estate consists of majority non-liquid assets such as real estate, share in a small company, jewelry and so on, there could be a substantial financial loss in the attempts to liquidate them quickly to get the money to pay off the debts. Life insurance provides the fund which your inheritors can utilize to settle all those pressing bills. Clear enough, if your estate comprises a huge portion of cash in bank or marketable stocks, you do not need insurance for this purpose.

By now, you should have a clear mind to determine if you really need life insurance and obviously, the decision made is purposed to protect our dependents - with love and affection.

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