Why Buy Life Insurance?
Life insurance can protect people who depend on you financially. It's simple: If you have life insurance and something happens to you, the people you name as beneficiaries on your policy will receive a payout.
You might think: “I don’t need life insurance. I’m too young.” Or “I don’t have kids yet.” Or “my spouse has a good job and will be financially okay.” But the truth is, many can benefit from life insurance protection.
The most common reasons people buy life insurance are to cover their mortgage, care for their children, and pay for funeral expenses. But life insurance also provides valuable protection if you have:
- Extended family that depends on you for financial support.
- A cosigner on private student loans. (This type of loan becomes due immediately upon death and the cosigner is likely the one responsible for paying it off.)
- Credit card or other personal debt. Sadly, your debts aren’t cancelled if you die. Without life insurance, your debt will be paid to creditors from any assets you leave behind via the probate process. (Probate can be an often lengthy process. It takes time for the court to review an estate and ensure that creditors are paid.)
How life insurance works.
If something happens to you, your beneficiaries will be able to submit a claim and receive a death benefit payout. That payout can help swiftly settle your affairs and financially provide for your loved ones. And, unlike other assets, life insurance generally is not part of the probate process.
There may also be tax advantages. Your family typically will not need to pay federal income taxes on the proceeds they receive from your policy, although state or local taxes may apply.
Finally, there are no restrictions on how your beneficiaries use the payout. They can use it to cover funeral expenses or to pay off debt (including the mortgage so they can stay in your home). It can be used to meet everyday expenses, like grocery bills or childcare, or your family may save it to help pay for future expenses, such as college.
Life insurance coverage can be very helpful should the worst happen. In general, it’s not as expensive as many may think. Costs can vary based on the amount and type of coverage you buy, making it likely that most people will be able to find a policy that fits their needs and budget.