Reasons to purchase life insurance

Life insurance is an important investment for anyone who has loved ones that rely on their income to survive. There are many options available when choosing life insurance and some may wonder how much coverage is enough.

Most experts recommend having 20 times your annual income up to the age of 40. After that, you should have coverage that is anywhere between 15 to three times your annual income, depending on your age.

According to an article by Jeff D. Voudrie of seniorjournal.com entitled, “Life insurance: too much, too little or just right,” on July 27, 2006, there are some circumstances when you may not need life insurance, and other times when life insurance is more important than ever.

The author points out that although there are times when you may not need life insurance; there are certain reasons why you should purchase a life insurance product.

“You should use it to provide a way to replace the breadwinner’s income in the event of premature death, as a means to pay future estate taxes for pennies on the dollar or to employ some exciting special-situation strategies. Otherwise, you may not need life insurance and could better use that money to fund higher priority items like Long Term Care Insurance,” according to Voudrie.

If you do have a family that relies on your income, you could be placing a tremendous burden on them by not purchasing a life insurance product.

Voudrie also explains that there are times when you may not need life insurance, such as when you retire.

“Once you retire you may no longer need life insurance. If you’ve accumulated enough assets to provide comfortably for your lifetime, then life insurance is no longer needed for income replacement. Don’t cancel that policy yet, though, because you may need it for other reasons.”

These other reasons involve federal estate taxes and how it may be easier to use life insurance for this purpose.

“Life insurance is a wonderful way to pay death taxes without eating into the estate itself. This is particularly true when a large percentage of an estate is tied up in non-liquid assets, such as real estate. In those cases, those assets would have to be sold in order to pay the taxes. With the proper use of life insurance you can avoid these situations entirely, and do it in such a way that you pay your taxes for pennies on the dollar. If your estate is smaller, you may not need life insurance to help cover future estate taxes.”

The other situation Voudrie gave for life insurance usage was special situation strategies, such as giving to charities.

“The third use of life insurance is for special-situation strategies. There are unique strategies that will dramatically increase the amount of support you can provide your favorite charitable causes or provide a financial safety-net for your loved ones for generations.”

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