Before you can get the life insurance coverage you need, you need to understand why you need it. While there are many reasons to buy life insurance, the most common reasons include:
1. Final expenses: Final expenses refer to any expenses related to someone’s passing. This can include a casket, funeral, preparations, memorial service, cremation and more.
Life insurance for final expenses is worth considering—after all, the National Funeral Directors Association reports that the median price of a funeral with a casket is more than $7,000. Funeral directors say families without enough funds are forced to cut back on the service or ask friends and family for donations. A modest term life insurance policy can unburden your loved ones by taking care of these expenses.
2. Income replacement: Your loved ones depend on your income to meet daily needs for food, medical care, utilities, car payments and much more. There are also future costs like a child’s college education or contributions you would have made toward a surviving spouse’s retirement. If you pass away without a means for replacing your income, their standard of living could be in serious jeopardy. If you have young children, there may be child care costs or home upkeep expenses to consider if your spouse needs to return to work.
How much life insurance you need is based on two factors: your salary and the number of years until you retire. An insurance agent will also account for any other factors such as Social Security benefits, your partner’s income and your savings. Always aim to buy the amount you really need—but also remember that something is better than nothing when it comes to life insurance coverage.
3. Paying off a mortgage: A mortgage is often the biggest single line item in a person’s budget. Could your family afford your home’s mortgage without your paycheck in the picture? If not, an already sad situation would be compounded by their possibly losing the house they love. This could also mean your children could no longer attend a school in their current district or maintain the friendships they currently have.
Life insurance can pay off an outstanding mortgage so your family can enjoy the home they love without the burden of outstanding payments.
These are the three most common reasons people purchase life insurance. Yet there are many other reasons for buying life insurance, such as building or leaving an inheritance, saving for retirement, protecting student loan co-signers and more.