4 Reasons You Need to Buy Life Insurance

No one likes to think about dying, but since it is inevitable, it’s important to plan ahead. In addition to creating a will or a trust and naming beneficiaries on retirement and bank accounts, you may need to buy life insurance. A life insurance policy is the best way for many people to leave money to their families to cover funeral expenses, replace income or simply have some money to leave behind to the people they care about. Here are some other reasons you may need to buy life insurance.

  1. You have student loans from a private lender.

Federal student loans are forgiven if the borrower dies. This also goes for ParentPLUS loans. If the parent or the student dies, the loans are forgiven (and, unfortunately, treated as taxable income). However, private lenders aren’t required to provide the same forgiveness and some will demand immediate payment of the loans in full upon the death of the borrower.

If you have taken out student loans from a private lender and someone co-signed those loans, you should see if you are eligible for a cosigner release or take out a life insurance policy so that the individual or individuals who co-signed for you aren’t ruined financially if you die. If you are a parent and have co-signed student loans for your child, you can also take out a life insurance policy in your child’s name. Regardless of who takes out the insurance policy,  make sure you are purchasing enough to cover the loans and any interest that may accrue.

The same advice applies if you are married and want to protect your spouse from having to pay back your loans. If you live in certain states (including Arizona) loans that you took out during the time you were married will become your spouse’s responsibility, generally speaking.

  1. You have children—young or old—who depend on you for financial support.

Did you know that 63% of parents aged 55 and older still support their children or grandchildren? Who would replace that income if you were to die tomorrow? If you provide financial support to someone in your family and he or she would not be able to live without it, you need to buy life insurance to replace that income if you die.

If you have a child with special needs who will need care throughout his or her life, it is especially important to make sure there is enough money provide them care if you die unexpectedly. You should estimate how much money will be needed to take care of your child if you were to die tomorrow and then start making a plan.

You will need to set up a special needs trust and, when you buy life insurance, name the trustee and trust as the beneficiary. Setting up a trust is important because if you simply name your child as the beneficiary of your life insurance policy, you will disqualify him or her from receiving government assistance. That’s because people with disabilities can’t have more than $2,000 worth of assets in their names in order to qualify for government financial programs.

  1. You have installment debt.

Installment debt refers to a loan that requires the borrower to make fixed payments for a fixed number of months. Do you have a car loan or a mortgage that isn’t paid off yet? You aren’t alone. Out of all the individuals ages 65-74 who have installment debt 64 percent have car loans that aren’t paid off, they are still in debt an average of $2300 from student loans and 41 percent have mortgage debt, according to the LIMRA Secure Retirement Institute.

This is especially important to keep in mind if you have a mortgage. Whoever inherits the house and the mortgage will be responsible for making payments. If they can’t afford to make the payments, the bank can take it back or it can be seized to pay other debts. If you don’t want your family to inherit your installment debt, you need to buy life insurance so that those debts can either be paid off or the person who inherits them can afford to make the payments.

  1. You have a pension that ends when you die.

Some pensions don’t have a survivorship option. This means that your spouse won’t be able to receive money from your pension if you die. If this happens, he or she may not have enough income to cover expenses. Luckily, you can replace that income stream with life insurance.

To figure out how much life insurance you will need, you can use this life insurance calculator or call an insurance agent who will be able to answer all of your questions. It’s important to keep in mind that the older you get the more expensive life insurance will become and the more difficult it will be to get, in general. It is extremely easy and relatively inexpensive for a healthy 20-something to get life insurance, but is much harder to get life insurance as you get older. That’s because the older you get the more likely it is that you will die. So if you need to buy life insurance for any of the reasons on this list, don’t delay.

If you buy life insurance when you are young, you can always add to it as you get older and your situation changes, like if you have kids or get married. The important thing is not to wait to get life insurance until it is too late. Because if you die without it, there aren’t any re-dos.

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Steve Gebhardt

Gebhardt Insurance Group was honored by AAA Insurance for being the top New Policy Agency in Arizona for 2013 and achieving the "Emerald Achievement Award."
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