Do I Need Life Insurance?

Do I Need Life Insurance?

If you are a provider to a family and your existing assets are not adequate to provide for them after your death, and you would like to make sure they are taken care of, then, yes, you need life insurance.

If you have no dependents but you want to make sure a charity you support receives an endowment in your name, then life insurance may again be the tool to use. There may also be benefits to you while alive if you do not have many options for tax-deferred savings.

The answer depends on several factors relating to your personal situation.

Variables to keep in mind when determining whether or not you need life insurance are: your life expectancy, your financial dependents, your current finances and lifestyle, your estate taxes, etc. It is also very important to asses both long-term and short-term needs that would arise in the event of your death.

As a general rule, it is wise to have Life Insurance when you are a main source of income for your family and your accumulated assets are not sufficient to support them. Therefore, if something were to happen to you, your dependents would be (relatively) financially stable.

Life Insurance might also be needed if your assets are substantial but not very liquid, and the tax-free death benefit would provide liquidity to a spouse to give him or her time to liquidate other assets, if necessary, without having to take the first offer that came along.

This liquidity pool could also be used to pay estate taxes, which would otherwise be paid with whichever assets the IRS feels like liquidating first.

Life insurance cash value may also provide a retirement benefit to those who do not have as many places as they would like to put money in a tax-deferred account, or who would like to see more of their money in retirement be tax-free, since loan withdrawals from life insurance cash value is not subject to income taxes, or at least has not been up to this point for policies which are not deemed to be Modified Endowment Contracts (MECs).

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