I think that the vast majority of us either have a life insurance policy, or we want one. Many of us even want to increase our policy limit. Why is that? Why do we feel the need to buy as much insurance as we can reasonably afford?
After speaking with many people, and discussing this issue with a few life insurance agents, we have gathered a list of the top ten reasons that people buy a life insurance policy. Of course there are other reasons, but these are the biggest ones.
This list is in no certain order. It also may not apply to you. There are really hundreds of reasons to get insurance, but these apply to the vast majority of us.
#1- Burial Expenses
A burial can be very expensive. It’s not uncommon for a funeral to cost $25,000 or even more. Once you add the costs of the funeral home, burial plot, service, and all of the related expenses, it adds up fast! Even if you are cremated, those expenses can approach $10,000 or more. Many of us would rather not have our family bear those expenses after we die. It’s going to be rough enough on them financially, so why place that extra burden on them when we can do something about it while we are alive. Burial expenses are one of the primary reasons that many choose to buy a small whole life policy.
#2- Pay Off The Mortgage
When I die, the last thing that I want my family to worry about is paying off the mortgage. I don’t want them to worry about how they are going to pay for the home, or even where they are going to live. This is why I love the concept of getting a policy to cover the mortgage. One option is to just buy a term policy for however many years you have left on the mortgage. If you die during that time, your family can use the benefits to pay off the home. You can also purchase a less expensive term policy that declines in value over time, so that when you die there is enough in the policy to pay off the balance at the bank.
#3- For Your Kids’ College
Many of us choose to set up a savings plan for our kids so that there is enough money to pay for their college expenses. You can also do this with a life insurance policy. If you are saving for their college plan right now, what will happen if you die next year? The answer is that there wouldn’t be enough money in the college savings. By buying a college plan that will pay enough for their education, you are covering that chance of you passing on before you have enough money saved.
#4- Family Protection
I think this is the primary reason that I have so much life insurance. I have a lot of term insurance, and a bit in whole life. The overwhelming reason that I have so much is for my family’s protection. Since I am the bread winner at our home, my family’s income would drop to almost zero if I died soon. What would my wife do? What would my kids do? By having a fairly large amount of coverage, I am protecting them today in case if I die soon. Sure, the money will eventually run out, but that money will make their life a lot easier for a long time.
#5- Small Business Survival
If you own a small business, what would happen if you passed away tomorrow? Would your business survive? Your spouse would likely have to hire more people to help run it. The business would likely lose some customers. It could take a few years to get back to where it was. One way to make it easier for your business to survive your death is with a life insurance policy. You can just instruct your spouse to use the proceeds to help run the business for a few years during this likely downturn business.
We all want to be remembered. Many people buy a policy to have their legacy live on. You can make anyone your beneficiary, and even any charity.For example, I had a good friend pass away a few years ago. He named a local cat charity organization as his primary beneficiary in his term policy. When he passed away, the charity put that money to great use, and even named a new program to help cats after him. His legacy will be around for many years to come.
#7- Support Your Nonworking Spouse
Perhaps your spouse is not working. Maybe she is busy raising the kids and taking care of the house. If your spouse is not working, what would happen if you passed away? Could he/she get back to work immediately? Could he/she make enough to support the home? Most likely, they could go back to work, but it could take many years for their income to rise enough to support the household. Having insurance to help them in this transition could be the difference between them being ok, and them having to sell everything and live in a trailer.
#8- Pay Off The Bills
I have a lot of bills. When I die, those bills aren’t going to disappear. The burden to pay them off will fall upon my wife. What is she going to do if she doesn’t have enough money to pay off the debt? Will she drown in it and lose everything? Unless you have enough savings, your debt could likely destroy the family you leave behind. If you have a policy that can cover your bills, your family may have enough breathing room to make it out ok.
#9- Take Care Of Your Pets
This may seem silly to many, but a lot of people actually buy a life insurance policy to take care of their pets after they die. I personally know three people that have done this. Many will talk to someone that they trust and ask them to watch after their dog/cat/bird/etc. after they die. They will then purchase a small policy where they name that person as the beneficiary, and instruct them to use the money to take care of their “baby”.
#10- To Show Love
Last, but not least, many of us believe that the primary reasons to buy life insurance is to show our family and friends that we love them. In my opinion, thinking about your loved ones by worrying about them after your death is the ultimate expression of love. To me, naming a beneficiary in a policy shows that you love them forever.