In this series, we will look at 10 awesome benefits of life insurance. Yes, life insurance. Don't be turned off, you might learn a thing or two. True, life insurance does not offer instant gratification which sometimes leaves us unappreciative of its future benefits. So as not to miss out on these future benefits, let's shine a light on 10 benefits of life insurance and be amazed! And FYI, this is not an exhaustive list!
Benefit No. 1 - Income Replacement via a Death Benefit Payout:
So imagine a household with both partners working to support the family. They have a mortgage, car payments and operate on a tight budget to cover monthly expenses and keep the kids engaged with activities. Bamm! The unforeseen happens and suddenly one partner is gone. Life afterwards could go either of two ways.
Scenario A: Neither partner had life insurance. Now the remaining partner is stressing about covering funeral expenses and how they will keep food on the table. Soon, they get a call from the bank as the bank is concerned about the remaining partners' ability to continue the mortgage payments. In the coming weeks all savings are depleted and the bills are falling behind. In a few months, the partner has to put the house on the market. They can no longer afford child care and due to significant time off from work, there is concern about being able to hold onto the job. The emotional and financial overwhelm continues to spiral.
Scenario B: Both partners have life insurance with the other named as beneficiary as they recognised the need for income replacement should something happen to either one of them. Within weeks of the incident, the insurer makes a tax-free lump-sum payout to the surviving partner. They are able to quickly address funeral expenses, estate taxes and settle the mortgage. The remaining balance was invested and the earnings are able to cover the remaining living expenses allowing the surviving partner to take some time off work to care for the kids and grieve.
Which of the two scenarios would you want to be your story?
The most basic benefit of life insurance is that it takes care of your loved ones when you no longer can by providing a financial lifeline when they need it most. The dreams of the family don't have to die too.
So to recap, life insurance, at its simplest, is a contract to provide a tax-free, lump-sum payout to beneficiaries on the death of the insured. Typically, premiums paid are a small fraction of the coverage amount - the best return on investment I have ever seen. Life insurance is mostly considered to support families but can be used by corporations as well to support partners in business.
When you have others that depend on you - e.g. spouse, kids, parents - having life insurance is definitely a good idea. If you wait until you need it, then it's too late. Look out for the next of the Magnificent 10!
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