Do I Need Life Insurance?
Life insurance is an important financial tool that people often overlook, or neglect to even consider. This may be either because they think they do not need it, they find it too complicated, or they believe it is likely to be prohibitively expensive. However, understanding the importance of life insurance and where it should be used, is an essential part in providing peace-of-mind and financial security for you and your loved ones. Here we will explore some of the more common reasons you may need life insurance and provide some simple examples to help illustrate its value when used in the right circumstances.
At its most basic level, life insurance is just a contract between you and an insurance company, where you pay premiums in exchange for a possible future payout to your beneficiaries, or estate, upon your death. While this sounds simple, the purpose it serves can be profound: financial protection for those who depend on you. Whether you are the main wage earner in your family, a caregiver, or a business owner, life insurance should, at the very least, be evaluated and considered as part of your overall financial plan.
Of course, not everyone needs life insurance, but many do. Here are just a few of the primary categories of individuals who should consider life insurance, and brief examples of why.
Parents with Dependent Children –
If you have children, your untimely death could leave them without the financial resources needed to sustain their quality of life. This is especially true if you are the main breadwinner for the family. If you were to pass away prematurely, and do not have enough money already saved to provide for the needs of your loved ones, life insurance can cover essential expenses like housing, education, and daily living costs. Here is an example that helps illustrate why life insurance might be important in this situation…
…Sarah, a 35-year-old single mother of two, worked as a teacher and supported her family independently. Tragically, she passed away in an accident. Fortunately, Sarah had a $500,000 life insurance policy. This ensured that her children could stay in their home and provided funds for their college educations. Without life insurance, beyond the despair of having to come to terms with living without their mom, Sarah’s family would likely have struggled to meet their basic financial needs. And, while there is, of course, no substitute to make up for the loss of a parent, at least you can remove the additional burden of financial despair by having proper life insurance in place.
Dependent Partners & Care Providers –
Even if you are not a parent, if you have a partner who relies on your income, or you provide financial or physical care for an aging parent, disabled family member, or friend, life insurance ensures that their financial and/or physical care can continue in your absence. This is more important now than ever, as people are living longer and more and more children are having to help support their aging parents, both physically and financially, for an extended period of time. An example of this situation is below…
…Carlos supported his elderly mother, who relied on him for housing and medical expenses. His life insurance policy guaranteed that she would have the resources needed to live comfortably after his death. Since Carlos was the only one caring for his mother and providing the income and assets she needed, by leaving her with assets from his life-insurance death benefit, he is ensuring that she can continue to receive care and pay her bills even if he is no longer around to provide for her.
Individuals with Shared Financial Obligations –
If you and a friend, or partner, share financial responsibilities, having adequate life-insurance coverage can help guarantee that the survivor is not overwhelmed with debt, or unable to maintain the household in the event of your unexpected and untimely death. A simple example of this situation is as follows…
…Debbie and Dawn bought a house together and were paying off a 30-year mortgage. Dawn unexpectedly passed away from a heart attack. Thanks to Dawn’s life insurance policy, Debbie received a death benefit that allowed her to pay off the mortgage, avoiding foreclosure and financial distress. Losing a partner can be emotionally devastating for the surviving partner. And, while no amount of money can erase the emotional loss, having the money to pay the bills and be able to continue to live the life you are used to, can be an absolute savior for the survivor. If, instead, the survivor loses their partner and at the same time loses their ability to pay the bills, this is a compound disaster—one that with proper life-insurance planning, could have been avoided.
Business Owners –
If you own a business, life insurance can protect your partners and employees by covering debts, funding buy-sell agreements, and ensuring business continuity when you are gone. So, unless you are doing business as a sole-proprietor and have no partners or employees, it is almost certain that life insurance should be involved in your business and succession planning. An example of why business owners need insurance is illustrated below…
…Mark and Lisa co-owned a thriving bakery. Mark had a life-insurance policy that named Lisa as the beneficiary. When Mark died, the policy payout enabled Lisa to buy his share of the business and continue operations, pay employees, pay vendors, and help maintain the business while Lisa looked for a new business partner. Without this insurance in place, it is likely Lisa would have lost the business and she and her employees would be facing serious financial difficulties.
As you can see, there are many circumstances where life insurance can play an important role. And, the cases discussed above are by no means an exhaustive list of situations in which life insurance may be needed. The decision to purchase life insurance depends on your unique circumstances. If you have financial or physical dependents, shared financial obligations, or have long-term goals that you and your loved ones need additional savings to meet, life insurance can provide essential protection and peace-of-mind. Ultimately, life insurance is not just about money; it is about love, responsibility, and leaving a legacy of care and support.
Disclosure
The commentary on this website reflects the personal opinions, viewpoints and analyses of the Topel & DiStasi Wealth Management, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Topel & DiStasi Wealth Management, LLC or performance returns of any Topel & DiStasi Wealth Management, LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Topel & DiStasi Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.