There are many reasons why people think they don’t need life insurance. Some believe that they can do more with the money by investing it themselves; or even use it to fund a business venture. In countries like Canada, France, Australia etc., which have strong government sponsored social welfare systems, people may think that life insurances are at the bottom of their priorities. It is also fair to say that a few don’t really need life insurance because they’re financial made. However, any life insurance agent would go through a need analysis using the following factors to determine how much (if ever) life insurance is needed.
Ongoing Family Expense
How much of the total family income will be loss when you die? Many simply refuse to think about this reality. The thought of dying and its consequences to the family make people forgo the idea of planning for the eventuality. A life insurance agent would guide the family in computing for income replacement in the event the insured dies. A commonly used income replacement figure is 70% of total family earnings.
First of all, life insurances are creditor protected. They are transferred directly to the beneficiary and not to the estate. While it is true that creditors can’t legally pursue heirs on the debt of the insured, it is also true that the estate can’t pass on to the heirs until debts are settled. When analyzing the need for insurance, it is prudent to take into account all existing debts and increase insurance coverage as debt increases.
A life insurance is a great tool to create wealth for generations to come. Even with limited extra funds, you can actually leave behind a legacy to your heirs. Remember that some life insurance products (such as whole life policies or an IVIC – segregated fund) have added features of gaining cash values – living benefits – done through flexible investment schemes.
If taken for granted, final expenses can really burden your love ones. Aside from the actual burial expenses (even the modest ones can cost from $5,000 – $10,000), there are other final expenses such as legal and accounting fees; especially in cases where a business or large assets are involved. In these instances, the need for insurance is part of wealth management and estate preservation.
There is a need to file a terminal tax return on the death of the taxpayer. If there are assets which are deemed disposed of at death, then there it is also necessary to pay for capital gains taxes. Life insurance is not only needed to pay off debt to private entities but also for taxes due to the government.
Life insurance is an increasingly popular way to help fund charitable institutions. The great thing about being generous is that donating to your favorite charity (like a gift of life insurance) can reduce taxes on the estate of the deceased. If you don’t want to turn over your money to the government, you can instead choose to donate it to your favorite cause.
Family Income and Assets
In computing for the amount of insurance needed, the remaining family income after the insured dies, and the value of accessible family assets are what counterbalances the need analysis equation. The insurance agent can then deduct the remaining income and relevant assets to the gross amount of insurance needed to determine the life insurance coverage and the necessary premiums.