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Why Most People Should Have Life Insurance
To better understand why most people need life insurance, it is first and foremost important to understand exactly what life insurance is and how it works.
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What Is Life Insurance?
Life insurance is an insurance policy that pays out a lump sum to a selected beneficiary or beneficiaries upon the death of the policy holder. There are a variety of different types of life insurance and the policy holder will pay installments on a monthly or annual basis depending on the type of policy.
For example, with a whole life policy, the holder will no longer be required to pay premiums or installments when the policy reaches the date of maturity. With a term policy, the holder can cash out the policy after the date of maturity. Limited pay life insurance sets a limit on how many years the insured will need to pay. Benefits will still pass to the beneficiaries in the event of death after payments towards the policy have concluded.
So why exactly do most people need to have life insurance? This is an interesting question and the answer may differ from one individual to another. Commonly, the following reasons necessitate life insurance:
Taking Care Of Your Loved Ones
Even if you have a valuable estate to pass on to your spouse, children or other loved ones, it can take months or even years for the estate to pass through probate and for them to benefit from the estate. A life insurance policy will provide immediate cash to your loved ones in the event of your passing. These funds will allow them to cover funeral and other expenses such as estate taxes as well as replace your income that they may have become dependent on. A life insurance policy does not form part of probate and the value of the policy will be paid to your beneficiaries in full upon your death.
Your estate and heirs will be responsible for paying off any of your outstanding debt when you pass away. This could leave them in financial distress. A life insurance policy can be used to cover all your outstanding debts leaving your heirs free to continue living without the concern of having to cover your debt.
Most banks, financial institutions and mortgage providers will not provide you with a loan or finance to purchase property without a life insurance policy. The life insurance policy should be in an amount that will cover the outstanding balance of your home loan or mortgage in the event that you pass away. However, different financial providers will have various criteria as to the type and amount of life insurance you will need before they will approve finance for a property purchase.
It is important to think about the long-term future of your dependents and loved ones and what will happen when you are no longer there to support them. Will your spouse need to get a job or employ help to take care of the children? What will be the future educational requirements of your children? What would happen in the event that those you leave behind become ill and require ongoing medical care? Who will cover the costs? Your life insurance policy will help pay for all future educational, health and any other expenses, both unforeseen and regular that your family may need.
A life insurance policy can be taken out to cover any expenses related to a business that you own, are a partner in or have shares in. This will ensure that your personal estate is not touched by the needs of the business that you leave behind.