No one plans to die unexpectedly, and no one likes to think about the time after they’re gone. However, that’s exactly why both everyone, and especially business owners, should consider buying a life insurance policy. Life insurance isn’t mandatory but can take a strain off both your family and business in case of your sudden death and provide them with much-needed support. In the case of an unforeseen situation, it’s better to think long-term and be prepared. Here are 6 reasons why you should have a life insurance policy.
1. Clear rules
Life insurance pays out in case of your death. In order to buy it, first, you have to decide on three variables: the type (what kind of policy you want), the amount (how much it covers), and the term (how long it covers). You’ll be quoted a monthly price for your life insurance premiums based on this information. Then, depending on your wishes, the lump sum passes onto your beneficiary. In essence, the person you’ve stated should receive it, i.e your spouse, children, other family members, or even an entity, for example, a charity. While some people believe that life insurance is a scam, their arguments are shortsighted. A good life insurance policy protects your loved ones in case the unexpected happens. It helps them get through a difficult time of loss and grief.
2. Think about the next generation
Buying an insurance policy can help your family in many ways after you’re gone. First, it can cover final expenses such as funeral and burial or cremation, and these tend to be quite expensive. Second, it can replace the lost income. It may be extremely important to your family, especially if they rely solely on your income. You’ll provide them with enough financial security to help them get by when it’s time to pay monthly bills again. Additionally, your life insurance can secure your child’s college education. Insurance payouts can supplement your savings and help your child with student loans if they end up taking one. Additional coverage is necessary to ensure your family will be taken care of after you no longer can do it yourself.
3. Buying out a business partner
Most people involved in business partnerships need insurance on their partners’ lives. In case of their death, instead of selling the company, you’ll be able to buy their interest from their heirs and pay for their share of the company’s obligations. What’s more, your family will be able to sell your business without countless legal proceedings hindering the process. Establishing a clear situation won’t result in unnecessary lawsuits in this already stressful and painful time of loss.
4. Take care of taxes
First, there’s the inheritance tax. Unless you buy a life insurance policy that covers it, even though you’ve left your children or other family members some money, they won’t be able to receive the whole sum. You can also secure these funds if you put your insurance policy into a trust. This way, your assets should be exempt from the inheritance tax. Second, there are estate taxes. These can be steep, depending on how much your estate is worth. Your family may have a significant amount of taxes to pay off. Your life insurance policy should be enough to take care of all the necessary expenses.
5. Pay off debts
Unfortunately, when you die, your debts won’t go away automatically. Also, if you and your spouse have co-signed for a mortgage or other loans, repayment of further installments will become their responsibility. Creditors may try to collect from your estate, threatening the assets or funds you’ve prepared for retirement. A life insurance policy can significantly help those you leave behind with any lingering financial responsibilities.
6. Safety net for business owners
You may want to consider buying a life insurance policy if you’re a startup or a small business owner. It’s incredibly beneficial for a number of reasons. First, you can secure a small business loan if you decide to use your life insurance policy as a collateral. In the event of your death, the benefit will pay off the entire loan, and then your beneficiaries receive the rest, being debt-free. What’s more, if you’re a small business owner, your life insurance policy can help your employees or key stakeholders, who will still get paid in your absence.
It’s always a personal decision on how much life insurance you should buy and how much is enough for your family. Numerous factors contribute to this decision, including the number of children you have, your eventual debts, current income, a number of business partners, and many more. Nevertheless, buying a life insurance policy will provide your family with financial security and set them up for the time after you’re gone. That peace of mind is something that, for many people, makes it worth it.