What Is Life Insurance?

Life insurance offers a way to replace the loss of income that occurs when someone dies (usually the person who produces the majority of income in a family situation). It is a contract between the insured person and the company that is providing the insurance. If you die while the contract is in force, the insurance company pays a specified sum of money free of income tax to the person or persons you name as beneficiaries.
Permanent life insurance policy types — have a cash value that you can obtain by cashing out the policy or by borrowing against it. Though it can seem attractive, most financial experts agree that this feature should be seen as a secondary purpose of life insurance.

Do You Really Need Life Insurance?
A good life insurance program does more than just replace the loss of income that occurs if you die. It should also provide money to cover the new costs that arise such as funeral expenses, taxes, probate costs, the need for housekeepers and child care, and so on. And these cash benefits should provide for your family’s future needs as well, including college education for your children and part or all of your spouse’s retirement needs. In almost all cases, your beneficiary can use the cash benefits in the way he or she sees fit, without restriction.

What Happens To Your Family If You Don’t Have Enough Coverage?
Under any circumstances, the loss of a loved one is a traumatic experience. But, if your family is also left without sufficient money to meet basic living needs or prepare for future goals, they will have to cope with a financial crisis at the same time. Depending upon their current financial resources and ability to “get back on their feet” emotionally and financially, your family might be forced to move to a less desirable home or community, abandon education and career plans, reorder family priorities (such as the amount of time spent with the children) and, in general, cut back on the quality of life you have worked hard to achieve.

Your family might even be forced to go into debt simply to pay the expenses, like funeral costs, taxes, and medical bills, that result from your death. A moment’s reflection will tell you that the lack of sufficient life insurance coverage when a loved one dies can have devastating consequences for a family…consequences that can last for years.