Top 5 Reasons People Buy Life Insurance
Term or Whole Life Insurance Can Protect Family, Give to Charity
Jul 14, 2009
Unlike other types of insurance, life insurance doesn't usually benefit the person who pays for it. Instead, term or whole life insurance helps the people who are left behind – a spouse, children, or other dependents - when the insured party dies. There are many reasons a person might invest in this type of insurance, but most of them boil down to the following five.
Life Insurance to Pay Funeral and Burial Expenses
Even someone with no family or dependents might purchase a small life insurance policy to pay for the expense of his or her funeral, burial, and estate taxes – costly procedures that can cut into any money a person might otherwise leave to friends or to charity. Someone with a family is even less likely to leave these expenses to chance.
Life Insurance to Support Family and Dependents
The number one reason that people buy insurance is to safeguard their families' finances for the future – even if they should happen to die. Life insurance is intended to pay out enough money to support the family even if the deceased person was the major breadwinner – paying for living expenses, mortgage payments, the possibility of medical costs, and even children's college tuition.
The larger the potential payout, the more costly the plan, but here it's often worth it. Cheap life insurance sometimes fails when it is most needed because cheaper insurance policies may have conditions and exemptions that allow the insurance to escape paying.
Life Insurance to Protect a Business
Business owners and managers may take out a policy on themselves to protect the business in which they have invested so much time, energy, and attention. It's possible to insure key persons or business partners to pay out the business in the event of death, or to pay the family. In the former case, this type of insurance protects the business from the loss of expertise caused by the death; in the latter case, the insurance is meant to offset the estate taxes that could otherwise force family to sell the business at a loss.
Life Insurance as a Retirement Investment
Whole life or permanent life insurance is often sold as an investment or a savings plan. This type of insurance offers policy holders the option of cashing in part or all of their plan at some point before their death – and receiving cold, hard cash instead of an insurance pay out to their survivors.
This kind of life insurance may sound promising, but experts agree that it is almost always a waste of money. It's usually possible to invest the same dollar amount elsewhere for a higher rate of return. What's more, these policies often charge a premium for offering both an insurance plan and an investment, while only paying out one or the other – not the wisest way to save or invest money.
Life Insurance to Give to Charity
People who are less concerned with taking care of their families or ensuring the survival of a business might take out a life insurance plan as a lasting gift to a favorite cause or charity. This kind of gift is a laudable way to ensure a final donation much larger than most individuals could afford out of their own pockets.
Although there are many individual reasons people buy life insurance, the majority of them have to do with securing a safe financial future for family members and beloved causes – though insurance is not always the smartest way, investment-wise, to do so.
Sources
- Beaton, John, "Reasons to Buy Life Insurance," Beaton-Insurance.com, 2009.
- Patterson, Ryan, "6 Reasons to Buy Whole Life Insurance or Term Life Insurance," ArticlesBase.com, 21 August 2008.
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