Two things are certain in this world: death and taxes. Unfortunately, taxes are such a certainty, they even exist upon death. Because of these certainties alone, life insurance can be the answer many families look for when dealing with the less-than-perfect financial loss of a loved one. While many people view life insurance as a luxury to be bought and paid once necessities are out of the way, the truth is, life insurance is as much of a necessity as food, clothing, and shelter if you have any semblance of a family, whether it be a spouse and children, siblings, parents, or even an ex-spouse. Life insurance insures their life after your death and makes sure everyone is financially whole, even if they are emotionally in pieces.
Taxes and Death Expenses
It costs money to die. This is entirely apart from any estate tax, although that might be an issue as well. There are costs to bury or cremate a person. Then, the costs to appraise, administer, and probate a will and property disbursement must be added to the overall outpouring of money during this already difficult time. Without life insurance, your loved ones are left to worry about one more piece of the puzzle, which there may not be any liquid assets to cover. This may be the most costly endeavor your family will face and is the most obvious reason everyone should purchase even the smallest possible life insurance policy.
Peace of Mind
Once those issues are covered, it is important to review your family’s financial needs and well-being in the event of your death. Life insurance can be a wonderful resource to not only ensure your family’s financial well-being, but keep complex finances in order even when you are gone. For instance, business partners may utilize life insurance policies to cover the purchase of the partner’s business interest in the event of death. The payout will be enough to compensate the remaining family for the deceased party’s portion of the business while allowing the partner to both buy out his deceased partner and continue business as usual.
Life insurance is also a great resource to ensure large expenses will be covered in the event of the provider’s death. For instance, you may set up the policy to go to a child’s trust to be earmarked for college tuition. Or, your spouse may benefit by having the mortgage paid off to allow her additional money for living expenses without your added income.
This money can even be used for the added expense of retirement of the surviving spouse, such that she does not become dependent on the children. This can also be an amazing benefit for those with special needs children. Life insurance can be purchased to help cover the costs of raising a special needs child and caring for that child upon your death. Along with a proper estate plan and will, your child should be covered financially even when you and your spouse are no longer physically available to help.
The benefit to life insurance policies over other financial avenues is the non-existent transfer costs. Life insurance payouts are tax free and do not cost additional fees, such as administrative or legal fees. The money only becomes taxable upon the survivor’s death as a part of his or her estate, if your state has estate taxes. Therefore, life insurance becomes a desirable tax-free financial tool for your heirs.