Everyone knows why life insurance is important, but many of us choose to ignore the reality of what would happen if we were to die suddenly without the proper protection. The results could be devastating for your surviving family members, leaving them with a large bill for your final expenses, or even worse, loss of the family home because they can no longer cover the mortgage.
If you don’t currently have a life insurance policy, you are not alone. According to Life Insurance Statistics and Facts, which is a report put out by the life insurance industry, about 43% of the population don’t own a life insurance policy in any amount.
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Unfortunately, the study found that most of us are in desperate need of a life insurance policy. Nearly 1/3 of Americans would feel the loss of the primary earner in the household within the month.
We gathered a few stories to highlight the importance of life insurance. While these stories are fictional, they are based on very common situations.
Mary and Steve have a 24-year-old daughter named Amy who took out $150,000 in private student loans to fund her law school degree. Her parents co-signed the loans, wanting to give Amy a shot at her dream career.
Amy graduated from law school, joined a great law firm, had a baby and started paying off her student loans. When she died at the age of 34 from breast cancer her parents suddenly became responsible for about $120,000 (the balance on her loans) and their 2-year-old granddaughter.
Because they co-signed the loans, Mary and Steve were responsible for repaying the loan balance. In some cases, the loan documents may include an acceleration clause that will bring the entire balance due at death. Mary and Steve could not afford to pay off the loan and had to sell their own home to settle their daughter’s debt.
While no parent ever wants to take out a life insurance policy on their own child, if you have co-signed their loans, and paying off the balance of those loans would be financially devastating; a life insurance policy can protect you from financial ruin.
A 30-year term life insurance policy on a 25-year-old woman (Amy’s age when she graduated from law school) would be very affordable and would have saved the day for Mary, Steve and their granddaughter.
1. Insurance Through Work Isn't Enough
Scott and Trish were happily married with two kids. Scott had a great job that he loved and was pulling down $150,000 a year. His employer provided two years' salary in life insurance, which Trish (who handled the finances) thought was sufficient until she talked to a friend of hers who was an insurance agent.
Her agent friend warned her that any coverage through work is always a nice bonus, but it’s never a good idea to rely on it. In the event that Scott were to quit, be fired or be laid off, his life insurance coverage would go away, leaving them completely exposed, and if 10 years had gone by, coverage would be much more expensive because Scott was now 10 years older.
Most insurance experts recommend keeping your life insurance separate from any coverage offered by work. Consider work-related life insurance icing on your insurance cake.
Trish took her friend's advice, and purchased a $750,000 term life insurance policy with a 25-year term. This coverage level would give her enough money to pay off their mortgage, put the kids through school and give her a bit of breathing room if the worst were to happen to Scott.
2. Don’t Leave Your Kids Holding the Bag
Kelly, a single mother, always thought it would be a good idea to buy life insurance to protect her children, but something always seemed to get in the way. Money was tight, or time was tight and she just never got around to it.
Years later, Kelly purchased a small home; her daughter was then 18 years old and her son was 14. While she didn't exactly live paycheck to paycheck, her budget was pretty tight and didn't allow her much room for savings.
One night while driving home from work, Kelly was struck head-on by a distracted driver. She died instantly. While Kelly’s children were forced to deal with the tragic loss of their mother, they also had to face the fact that she left behind only a few thousand dollars in the bank and no life insurance, leaving them essentially broke after covering the cost of a very basic funeral.
That is why life insurance is important. Nobody knows what is coming around the corner. If you die unexpectedly, you can leave your spouse or children in a very tight spot.
Term life insurance is extremely affordable. A 20-year policy with a death benefit of $500,000 for a healthy female can cost as little as $25 a month.
3. Life Insurance Can Save a Business If a Key Employee Dies
John started a tech company when he was 20 years old. Over the years he grew it into a multi-billion business that was consistently on the cutting edge of technology, introducing many industry-disrupting inventions. Even though John now employed thousands, he was very hands-on and had personally come up with most of their major breakthroughs.
John’s board of directors was concerned that if something happened to John, the company would suffer a tremendous financial loss. The board felt that a key man insurance policy was needed. A key employee life insurance policy is put in place to protect a business from losses if an invaluable employee dies.
The company decided to take out a very large life insurance policy on John, over his strenuous protests. John felt that he was in fine shape and would live to a ripe old age. Unfortunately, John was wrong. He suffered a major heart attack and died a few years after the policy went into effect.
Sales and the stock price immediately plummeted after his death, and the death benefit from the life insurance policy kept the company afloat for the next 12 months while the new CEO rebuilt investor trust and got the company back on track.
4. Stay-at-Home Parents Need Insurance Too
Mike and Stacy have been married for ten years, and for most of that time Mike has been lucky enough to stay home with the kids while Stacy has been the primary breadwinner. While Stacy earns a good living, she would struggle to cover the cost of a nanny or other childcare provider if something were to happen to Mike.
Mike provides a variety of services to the family. He takes care of childcare, transportation, managing the household and their finances. He also deals with repairs and maintenance for their home. Mike also earns a small income doing handyman services around the neighborhood.
They decide that in the event something happened to Mike, a life insurance policy would ensure that Stacy would have enough money to hire the necessary help or take a few years off to stay at home as the family learns to cope with the loss.
Sarah purchases a 20-year term policy with a death benefit of $750,000 that will give her the financial means to replace the services Mike provided for the family as well as cover the cost of sending the kids to college.
5. Life Insurance Can Ensure Your Business Survives
Todd and Chris started a business together and over the years it grew into a successful enterprise. Their financial advisor recommended using whole life insurance policies to make sure that if one partner died, their family would be taken care of, and the business would survive the loss.
Todd purchased a $1 million whole life policy on Chris (and made the payments) and vice versa. Years later Todd was killed by a drunk driver. Chris received the death benefit from his life insurance policy on Todd, which he used to buy Todd’s share of the business from Todd's family.
This arrangement allowed Todd's family to be fairly compensated for his half of the business, while also allowing the business to survive without taking the major financial hit of paying off Todd's family.
This is called a buy/sell agreement and is a fairly common arrangement for small business partners.
Top Reasons Why Life Insurance Is So Important
Hopefully these stories have shown you just how important life insurance is and that it can save the lives of the people you live with. If you still have doubts, here are some reasons why life insurance is a necessity, not an option:
- Pay Off Debts: A life insurance policy can pay off any debts that you leave behind that would be a burden to your family. Debts such as a mortgage, credit cards, car loans and even your funeral expenses can have a dramatic impact on your family and their lifestyle.
- Provide for Your Kids: A life insurance policy will ensure that your children can go to college, buy a home and even pay for their wedding if you die unexpectedly.
- Peace of Mind: A term life insurance policy is an inexpensive way to give you and your family members peace of mind, knowing that they will be protected if something happens to you. You will no longer have to worry about their financial future and can rest easy knowing they will be able to continue their current lifestyle.
- Funerals Are Pricey: Even a basic funeral can cost $7,000-$10,000. A small life insurance policy will make sure your final expenses are covered so your family doesn’t have one more worry at an already stressful time.
- Supplement Your Retirement: Permanent life insurance policies accumulate a cash value over the life of the policy that can be borrowed against tax-free. These policies can be used to supplement your retirement if your other investments fall short. These policies often come with fairly high fees, so be sure to compare the costs to those of other investment vehicles.
- Protect Your Business: Regardless of whether you are using a life insurance policy to insure a key employee, fund a buy/sell agreement or simply provide a tax-free cash infusion (borrowing against the cash value of a permanent policy), life insurance can be a major asset to your business.
Where Can I Get Life Insurance?
If any of these stories struck a chord and you are considering a life insurance policy, you are in the right place. An independent agent can help you assess your specific risks and financial goals before recommending a policy.
Whether you need a term policy, a permanent policy or a combination of both, our agents will do all of the legwork for you, gather quotes, and present you with a variety of options that will provide the protection that you and your family need.
Start protecting your family today, contact an independent insurance agent now.