This is a critical question you should ask when looking for life insurance. Since your situation is different from anybody else’s, the reason or reasons you’re buying life insurance are unique to you.
Understanding how you’re going to use your life insurance will help steer you toward the right type, coverage amount and term. This is something you might want to ask yourself early in the process of searching for the right coverage.
Common reasons for buying life insurance
Protection
- Helping to protect your family from lost income
- Helping your family pay down your mortgage or other debt
- Assisting with child care expenses
- Paying for your children’s higher education
- Supplementing your spouse’s retirement income
Financial benefits
- Leaving a legacy
- Covering your funeral expenses
- Providing families with liquidity to potentially cover tax liabilities
Small business benefits
- Insuring your business against the loss of a critical employee
- Funding a buy/sell agreement for your small business
Using life insurance to protect your loved ones
This is probably the most common reason people buy life insurance. And with good reason. The costs associated with raising children are high—in fact, on average, it can cost from $212,000 to $454,000 per child!1 Without your income, it may be a struggle for the ones you love to maintain their lifestyle.
Ask yourself
If I’m not around, will my family need:
- To replace my lost income?
- To pay off my mortgage or other debt?
- To cover child care expenses?
- To pay higher education costs?
- To fund my spouse’s retirement?
If you answered “yes” to any of these, you’ll be using life insurance to protect your loved ones.
Find out how much you need to protect your family
Using life insurance for financial benefits
Insurance doesn’t always need to be used to protect your family from financial hardship. Some people use life insurance to help boost their own or their loved ones’ economic situation, or eliminate a potential financial burden.
Ask yourself
Do I want to be able to:
- Leave a legacy?
- Pay for my final expenses?
- Supplement my retirement income?
If you answered “yes” to any of these, you’ll be using life insurance for financial benefits.
Using life insurance to support your small business
Whether you want to keep your business running strong for the next generation, or you want to help your family to benefit from its sale to a partner, life insurance can be a critical part of your business plan.
Ask yourself
Am I concerned about:
- Keeping my business running for my children?
- Helping my family buy out my share of the business when I’m no longer around?
- Maintaining cash flow in the event of a key employee’s death?
If you answered “yes” to any of these, you’re using life insurance to support your small business.
1Department of Agriculture, Expenditures on Children by Families, 2015.
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