By Maricelle Ruiz-... on September 8th, 2010
The only thing non-negotiable in life is death. To date, death is a certainty. Hopefully, you will live a long life. But just in case, it may be wise to purchase life insurance. If something happens, your life insurance policy could serve as a lifejacket to those you leave behind. Life insurance could:
1. Provide family income.
You would want the surviving members of your family to live in a safe and financially stable environment. Life insurance could allow them to do just that, by covering mortgage payments, house utilities and repairs, car payments, property taxes, school and college tuition, and other expenses. "If tragedy were to strike, turning over the keys to the family home to the bank is probably the last thing you'd want to have happen to your loved ones," according to the non-profit Life and Health Insurance Foundation for Education (LIFE) website. Funds destined to young children should be under the care of a trustee before tragedy strikes, in case both parents die, to avoid legal process delays or financial mismanagement.
2. Pay debts including estate taxes.
Life insurance could pay for remaining medical bills, funeral expenses, and credit card debts, and enable the surviving spouse to have some time to find a job or to retire comfortably. "If you were suddenly out of the picture, you wouldn't want to leave your family to drown in a sea of debt," the LIFE Foundation says, noting families should always manage debt responsibly and adjust life insurance coverage to maintain their standard of living. Life insurance can also cover federal and state estate taxes, according to the Insurance Information Institute, so the heirs don't have to sell other assets to cover these expenses.
3. Serve as inheritance or a charitable donation.
The payment from your life insurance could replace real estate or other assets as inheritance for your children. A tutor should be assigned to manage the funds if the children are under 18 and a trust should be established to handle funds destined for grown children. If this trust is not in place, and an older child divorces, the funds destined to that child would be split between the ex-spouses. "Would you really want half the proceeds to go to someone who's no longer in the family?" the LIFE Foundation asks. You may also donate the benefits of your life insurance policy to charity.
4. Safeguard domestic partners.
The National Association of Insurance Commissioners (NAIC) warns that some states won't recognize domestic partners as legal heirs unless stated on a will. The money will be paid to the estate and the domestic partner may not be eligible to receive insurance proceeds. Therefore NAIC recommends you consult an attorney, tax or financial advisor familiar with the laws in your state to decide the course of action to take before contacting the insurer.
5. Supply alimony and child support payments.
A life insurance trust could be in place to help support your children's needs in case of divorce, according to the LIFE Foundation. Life insurance policies have also been purchased as part of divorce settlements to cover alimony expenses guaranteed for the life of the ex-spouse, who receives this payment.
6. Maintain aging parents and grandchildren.
Many heads of households have parents or grandchildren under their care. A life insurance policy should take into account parental well-being, factoring in their cost of living and healthcare. In terms of grandchildren, to make sure they are protected if you're no longer there, NAIC advises you purchase term life insurance, rather than whole life insurance policies. NAIC explains term life insurance policies are less expensive than whole life insurance policies because they are issued for a limited period of time. However, NAIC claims, most insurance companies won't sell for a term ending beyond your 80th birthday. A trustee should be in place beforehand to guarantee the appropriate handling of the grandchildren's insurance funds.
7. Protect your dependents if you work in a conflict zone.
Members of the military and other workers in war zones and areas targeted by terrorists should take precautions to protect their families. Troops are covered by the Servicemembers' Group Life Insurance. However, that amount may not be enough.
8. Keep a small business going.
Life insurance gives those who are left behind the ability to pay loans, find needed business expertise and conduct other crucial tasks in the event you are no longer there to help.
