Nobody really wants to think about death. But when it comes to finances after you die, it’s only responsible to make sure your finances are prepared for what comes next.
Life insurance is often part of the discussion when it comes to securing your financial future. Because there are so many options to choose from, it’s hard to know what’s what and whether you’re getting ripped off by salesy life insurance agents disguising it as an “investment.”
So, what is life insurance really for and do you even need it?
Here are 3 primary purposes of life insurance.
Leaving a legacy. In simple terms, this means that you want to leave money behind to financially benefit your family or a specific cause. Keep in mind that you’re not just limited to naming your family – or any human being rather – as a beneficiary. You can name your alma mater as beneficiary to establish a new scholarship or benefit a charitable organization that you’re passionate about.
Covering your funeral costs. Funerals cost way more than most people think. And if your family is left scrambling, trying to figure out how to cover funeral expenses while still mourning the loss of their loved one, it only adds insult to injury. The average funeral ranges between $7,000 and $12,000. Even cremation costs $6,000-$7,000. So, your life insurance benefit can provide invaluable peace of mind to your loved ones when they’re making final arrangements and don’t have to tap into their own wallets to pay for your funeral. Want to plan ahead for this? The Federal Trade commission has a funeral expense checklist.
Paying off your debts. If you’re carrying debt, it doesn’t just disappear after you pass away. Who inherits your debt when you die? We wrote a four part series to answer this here.
Any debt becomes the responsibility of your estate, which generally means your family will be the ones trying to figure out how to pay it off. Especially if you share and carry a mortgage on a home you share with a partner and/or children, you’ll want to make provisions to allow them the option to stay in the home at your passing, particularly if you are the primary income earner. Carrying a life insurance policy that at least covers your current mortgage can help your family maintain some semblance of normalcy after your passing.
THE BOTTOM LINE:
Life insurance may seem like an unnecessary expense to include in your budget, but it can provide a way to help you accomplish your goals, even after your death. It’s important to understand your options and work with a trusted life insurance agent when making decisions about how to invest in life insurance. Just be sure you’re not being oversold life insurance. The easiest way to spot this is if they pose the life insurance policy as a savings vehicle or as an investment. Just buy enough to cover the 3 basics discussed.