Life Insurance: Purposeful Protection

An unknown author once quipped “you don’t buy life insurance because you are going to die, but because those you love are going to live.” Nothing could be said that would ring truer.

Life insurance is arguably one of the most powerful financial instruments ever created. For an incredibly feeble amount of money, an individual can purchase a substantial amount of security for his or her family, business or estate. Approximately 60% of adult Americans have life insurance with 1 out of 5 saying they do not have enough, [1] 44% of younger Americans believe life insurance costs 5 times as much than a typical policy.

Regardless of why someone has yet to purchase a life insurance policy, the purpose of purchasing coverage will always remain the same. In broad terms, purchasing a life insurance policy is to fulfill one of four primary financial objectives.

For the Family

If one depends on you and your paycheck, you need to purchase a life insurance policy. Picture your monthly budget. Now imagine your partner trying to pay the monthly expenses without your financial contribution. From covering funeral expenses to eliminating debt, the financial well-being of those you leave behind is reliant on replacing your income as fast as possible.

Life insurance also provides a vehicle to fulfill the dreams and promises for your children. College tuition can be fully funded along with your daughter’s wedding wises or down payment on her first starter home. And for parents with special needs children, their lifelong medical needs can be secured.

Back a Business

Most businesses rely on key personnel to maintain their high level of success. Should one of those individuals unexpectedly pass away, an organization may be unable to recover. Life insurance plays a critical role in the financial soundness of closely-held businesses.

Life insurance policies are commonly used to fund cross-sell purchase agreements. The coverage readily provides the funds necessary for a business to purchase the interests held by the spouse of the deceased partner or shareholder. Effectively, life insurance can prevent becoming partners with someone never intended.

Many businesses’ success is often attributed to the efforts or knowledge of select individuals whose loss could sink an entire organization. Key-man life insurance can provide an influx of cash to buoy sales from the death of a top salesperson or hire consultants after the loss of your best engineer. For businesses, life insurance can actually buy the time needed to stabilize and continue profitable operation. 

Leave a Legacy

From small communities to big causes, charities to churches, Americans are an incredibly philanthropic people. If fact, together we contribute over $1B every day to charitable causes. [2] Unfortunately, when we pass away, so too do our charitable contributions. That is, unless there is a life insurance policy in place naming a charitable organization as the beneficiary. 

Life insurance is a wonderful way to support your favorite cause. With its relatively low cost, the proceeds can fund a myriad of organizations for lengthy periods of time, provide financing for the construction of new buildings, or furnish much needed supplies to a charity whose cause is in need. The opportunities are endless and will leave an indelible mark on those you help. 

Estate Planning

Estate taxes, also known as the death tax, remain a part of the tax code. While wealthy individuals certainly need to plan how their heirs will pay for the potential 40% tax rate on inherited property, the estate tax can also sneak up on everyday Americans. Small business owners, farmers, and property owners may find themselves with assets worth more than the $11.58M estate tax threshold. [3] 

Without proper planning, the IRS will look to liquidate assets to pay the estate tax as soon as nine months after ones passing. This can lead to the unwanted sale of a business, property, or farmland. Fortunately, life insurance can provide the financial means necessary to avoid selling any property. And while $11.58M is indeed a significant sum, the current tax law is set to sunset to the pre-2018 $5M level by 2025. 

[1] https://www.iii.org/fact-statistic/facts-statistics-life-insurance

[2] https://www.charitynavigator.org/index.cfm  

[3] https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax