There are all sorts of reasons that people purchase life insurance coverage. The primary reasons are:
Mainly, people who have financial dependents and large amounts of debt should consider life insurance in order to protect their loved ones in the event of their death. While it is not a pleasant thought, we all must die one day. Protecting your family in the event of your death is the primary purpose for life insurance.
For those with financial dependents such as children and spouses, life insurance can supplement your income for them in the event of your death.
Paying Off Debt
For those with large amounts of debt such as mortgage, car loan, student loans, auto loans, etc… life insurance can serve as a way to pay off these debts in the event of your death so that they are not passed on to your family through an estate.
Occasionally, life insurance may be required by law in the event of a divorce in order to prove that you have a way to pay child support or alimony in the event of your death.
Life insurance is often times used by business owners as a way of collateral assignment for loans. In this case, a life insurance policy can be taken out that is then assigned as collateral on a loan, promising that the policy will pay out the amount you owe to the bank in the event of a default.
Small Business Loans
Securing an SBA loan or funding a buy-sell agreement. Maybe you are finally launching your dream company, but are securing an SBA loan to do so. Most people didn’t know that the government requires you to secure your SBA loan with a life insurance policy as collateral assignment.
From the SBA website: “the Lender should require life or disability insurance where there is a concern over whether the business could survive in the absence of an individual or small group of individuals that provide the management for the small business concern.”
You need this money now to begin your business, and can’t wait 2-3 months for a life policy to be approved. “No exam” policies can be approved instantaneously without holding up your business financing.
Many adoption agencies will want to make sure the child is not placed in a financially unstable home. One way to demonstrate financial care for the child is to have life insurance in place to provide for care if something happens to you. Again, speed is the issue here, and long delays in underwriting could delay or suspend an adoption process.
Life insurance is also used for many other reasons, such as planning for retirement, leaving a legacy, building a trust or estate, and as an investment vehicle. For the most part, if these reasons are why you are looking for life insurance, you should likely consider permanent life insurance, which we will discuss at the end of this section.