The Importance of Life Insurance
Many people go without life insurance, either because they don't think they can afford it or because they don't think they need it. But there are many reasons why it's important to have life insurance.
If you are the main bread winner in your family, it's important to have life insurance to replace that income if something happens to you. If your income supports a spouse and children or a vulnerable adult, they could be left in dire straits if you were to die. An insurance policy will replace at least some of that income.
Pay for funeral and burial expenses
Even if you aren't supporting anyone and no one will go without if you die, it's still important to have at least a small insurance policy to pay for funeral and burial expenses. Such expenses can easily run thousands of dollars, and if you don't have insurance, your heirs or loved ones may have to cover the costs.
There are two main types of life insurance: Term and whole life. While term insurance simply provides a death benefit, whole life insurance has an investment component that builds up a cash value over time. You can borrow against that cash value at any time, and if you decide to stop paying for the policy, the cash value is yours to keep. Having a whole life policy can be an important part of your retirement portfolio.
If you are wealthy, money and assets you pass on to heirs when you die may be subject to the federal and state inheritance and estate taxes. Even if the inheritance is not large enough to be taxed, any money that's in tax-deferred retirement accounts will be taxed when it's taken out. However, most life insurance proceeds are tax-free, meaning you can leave the money to your heirs and they won't have to worry about taxes.
Which type of life insurance policy is right for you depends on your situation. If you just need a death benefit, a term policy may be best for you. If you want to build wealth in addition to a death benefit, you may want to get a whole life policy. Before buying any policy, you need to get an insurance quote to make sure you get the best deal.