term insurance Essay

1593 Words 7 Pages
Why buy life insurance?

Many financial experts consider life insurance to be the cornerstone of sound financial planning. It is generally a cost-effective way to provide for your loved ones after you are gone. It can be an important tool in the following ways:

Income replacement
For most people, their key economic asset is their ability to earn a living. If you have dependents, then you need to consider what would happen to them if they no longer have your income to rely on. Proceeds from a life insurance policy can help supplement retirement income. This can be especially useful if the benefits of your surviving spouse or domestic partner will be reduced after your death.
Pay outstanding debts and long-term obligations
Consider life
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Permanent life insurance provides lifelong protection. As long as you pay the premiums, the death benefit will always be there. Furthermore, you never have to medically re-qualify for permanent insurance like you do when you renew term insurance.

Most permanent policies have a feature known as "cash value" or "cash surrender value."
There are a number of advantages to having this cash value build up. For example:

The cash value can be taken out either by withdrawing or borrowing. You may borrow from the insurance company, using the cash value in your life insurance as collateral. Unlike loans from most financial institutions, the loan is not dependent on credit checks or other restrictions. You ultimately must repay any loan with interest or the borrowed amount will be deducted from the death benefit, which goes to your beneficiaries. Because this method of withdrawal is considered a loan, it is an income tax-free transaction.
The cash value accumulates on a tax-deferred basis.
The cash value is a personal asset and is reflected on your balance sheet.
You may cancel or "surrender" the policy -- in total or in part -- and receive the cash value as a lump sum of money. If you surrender your policy in the early years, however, there may be little or no cash value.
If you need

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