13 Reasons Why – You Should Have Life Insurance
But, if someone depends on you for financial support - and you don't have a policy - it might be time to buy one.
To help you decide if you coverage, we've compiled a list of the 13 most common reasons people purchase life insurance.
If you already know you need a policy, you can skip to the form below to instantly compare life insurance quotes online. We work directly with 63 top-rated life insurance providers to help you save time and money.
Quick Article Guide
Here’s what we'll cover in this post:
- 1. To Provide An Income Replacement
- 2. To Pay For Burial Costs And Final Expenses
- 3. To Secure Your Mortgage Balance
- 4. To Protect Your Estate from Taxes
- 5. To Collateralize an SBA Loan
- 6. To Fund A Buy-Sell Agreement
- 7. To Get the Most Out of Your Pension
- 8. To Leave an Inheritance Behind
- 9. To Settle A Divorce Decree
- 10. To Secure A Large Debt
- 11. To Provide Liquidity
- 12. To Protect the Cost of Your Child’s Tuition
- 13. To Fund A Special Needs Trust
1. To Provide An Income ReplacementAre you the primary breadwinner for your family, or does your spouse rely on your income each month to pay the bills? If you answered “yes” to either one of these questions, you should probably consider purchasing life insurance.
Term life insurance provides affordable premiums and fixed coverage for a set number of years, making it ideal for income replacement protection. When comparing rates, we recommend purchasing a term policy that is long enough to extend to your planned retirement age. Most life insurance companies offer 10, 15, 20, 25, and 30-year terms.
2. To Pay For Burial Costs And Final ExpensesOne of the most common reasons people purchase life insurance is to leave money behind to pay for their final expenses and burial costs. When purchasing life insurance to pay for your final expenses, it’s also important to purchase a policy that you cannot outlive, which is why most people purchase Guaranteed Universal Life or whole life insurance.
Whole life insurance typically provides level premiums and fixed coverage until the age of 80 or later, while guaranteed universal life insurance can be customized to your needs. Most GUL policies offer guaranteed rates and coverage until the age of 90, 95, 100, 105, 110, or 120.
3. To Secure Your Mortgage Balance
If you still owe on your home, you may want to purchase a life insurance policy to secure the balance of your mortgage. By purchasing this coverage, you’re ensuring that your family will be able to keep their home if something happens to you before the mortgage has been paid off.
Term life insurance is the most popular choice for mortgage protection because your policy can be customized to match your mortgage and the number of years remaining until it is paid off.
If you pay your house off faster than expected, no problem! You can cancel your policy at any time without fees, and many term policies will also allow you to reduce your coverage to save money.
4. To Protect Your Estate from TaxesIn 2026, the estate tax exemption will decrease from more than $12,000,000 to roughly $6,000,000 per individual. The current exemption is large enough to prevent 99% of American's surviving family members from paying estate taxes, but if your estate is worth more than $6 million, your loved ones may owe taxes on the assets you intended to leave behind.
In addition, to federal estate taxes, some states also charge their own estate and inheritance taxes. To avoid or reduce these liabilities, most people utilize and ILIT, or an irrevocable life insurance trust. The trust will pay any taxes your estate owes and in-turn, this prevents your loved ones from selling off your hard-earned assets to settle with the IRS or the state.
5. To Collateralize an SBA LoanIf you’re starting a business, you may be considering an SBA loan. SBA loans require the lowest down payment and the lowest interest rates, but they usually require loan collateralization. Loan collateralization essentially ensures that your bank or lender will be paid back for the full balance of your loan, even if you pass away before it is repaid.
To collateralize an SBA loan, most people purchase term insurance with a guaranteed period that is equal to their loan term and a face amount that matches their loan balance. As the loan is paid down, the life insurance the exceeds the balance of the loan will be assigned to another individual such as a business partner or a spouse.
6. To Fund A Buy-Sell AgreementIf you already own a business, it may be in your best interest to create a buy-sell agreement that is funded with life insurance. Buy-sell agreements are utilized by businesses with more than one owner and their primary purpose is to determine how the business would be divided if an owner were to pass away or leave the company. This prevents the surviving owners and their deceased partners’ family from going to court or selling the business.
With a buy-sell agreement, each owner purchases a life insurance policy that is equal to their ownership share of the business. If one of the owners passes away, the proceeds from their life insurance policy will be paid to their spouse or beneficiary. This allows the business to continue operating and prevents the surviving owners from having to sell the company or its assets.
7. To Get the Most Out of Your PensionMost pension plans offer two options when you retire: a joint/survivorship option and a single life option. With a single life pension plan, the pension earner will receive a payment each month until they pass away. With a joint pension plan, the pension earner or their spouse will receive a reduced monthly payment until they both pass away.
While the joint pension plan provides protection to both spouses, the monthly payment is usually reduced by 30% to 40%, which can really affect your retirement plans. To avoid this scenario, people in average or better health may benefit by selecting the single life option and purchasing a life insurance policy instead.
8. To Leave an Inheritance BehindIf you want to leave money behind to your children or grandchildren, purchasing a life insurance policy may be your best option, especially if you are in average or better health. This allows you to spend your retirement savings guilt-free while still leaving a nest egg behind to your loved ones.
In addition, the payout from a life insurance policy is tax-free and anonymous, so you won’t have to worry about your loved one’s fighting over the money that you left behind for them. The pay out from your life insurance policy will be paid directly to your named beneficiary or beneficiaries.
9. To Settle A Divorce DecreeWhen couples divorce, the judge will often require the breadwinner to purchase life insurance. These policies are set up to ensure that the ex-spouse who is owed support will receive all the money they are entitled to, even if their ex passes away before the money is repaid.
As the alimony is paid down over time, you may be able to reduce the amount of coverage you carry to save money, or you can assign the excess coverage to another individual.
To learn more about decreasing coverage, please read our article, “Decreasing Term Life Insurance: Insider’s Tip to Save Money.”
10. To Secure A Large DebtIf you are securing a loan to start a business, to invest, or to purchase a secondary home, life insurance can provide you with an affordable way to secure your debt. By collateralizing your loan with life insurance, you may even qualify for a slightly lower rate.
In addition, if you pass away before the debt is repaid, your life insurance policy with provide your surviving family members or business partner with the money they need to settle the debt with your lender. This also allows your beneficiaries to keep the assets you have worked so hard to accumulate over your lifetime.
11. To Provide LiquidityLife insurance is usually purchased to provide one’s family or business with financial security. Upon death of the insured, their life insurance will pay a tax-free lump sum to the policy’s named beneficiary. Businesses often capitalize on this tax-loophole because your policy’s beneficiary can be a business, a lender, or even a business partner.
Permanent life insurance provides additional options to provide liquidity by building an untaxed cash value overtime. These funds can be borrowed from tax-free, or if the owner of the policy decides to withdrawal their cash value, they will not owe any taxes on principal.
12. To Protect the Cost of Your Child’s TuitionWe often speak with parents who want to secure the cost of their children’s college tuition to make sure they will have the money they need attend college. Unfortunately, most of the life insurance polices for children do not build a sizeable cash value by the age of 18, and they are expensive. These policies are primarily designed to cover up to $100,000 of burial expenses in the event of an unexpected death.
Instead of purchasing life insurance on your child, we recommend purchasing inexpensive term insurance on your own life and saving the difference. For a few dollars a month, you can purchase life insurance to cover your children’s college tuition if you are no longer around to help. By doing this, you’ll also save more money in your own account than your child’s policy would have accumulated in 18 years.
13. To Fund A Special Needs TrustA special needs trust can provide a supplemental income for your child without making them ineligible for government benefits.
Permanent, non-cash accumulating life insurance is commonly purchased to fund a special needs trust. The purpose of the trust is to separate the death benefit of your life insurance policy from your child’s personal assets.
The life insurance payout is held by the special needs trust and managed by a trustee, whom you appoint. The trustee of your special needs trust will allocate the money to your child as needed. You can name a family member, bank executive, or attorney, as the trustee of your special needs trust.
The two types of coverage that fit best are guaranteed universal life insurance or second-to-die insurance.
To learn more, check out our article about life insurance trusts here.
Free Life Insurance Quotes OnlineIf you are in the market for life insurance, we can help you explore your options. At JRC Insurance Group, we represent more than 50 top-rated life insurance companies and we are experts at matching our clients with the best option available.
Every company sets its own rates and underwriting guidelines; by applying with the right company, you can save up to 30% or more on the cost of your life insurance. We’ve helped thousands of families and businesses and we can help you too!
Give us a call today toll-free at 855-247-9555 to speak with an experienced agent, or you can request a free instant quote online to compare rates from dozens of insurers in less than a minute.
Managing Partner and Co-founder
Cliff is a licensed life insurance agent and one of the owners of JRC Insurance Group. He has helped thousands of families of businesses with their life insurance needs since 2012 and specializes with applicants who are less than perfect health. In his spare time he enjoys spending time with family, traveling, and the great outdoors.