I Need Instant Life Insurance

The need for instant life insurance can arise at any time, and for an entire plethora of reasons.  Sometimes, the reasons can be positive, such as the birth of a child or a wedding.  Sometimes, the reasons are not as pleasant, such as a medical concern or dependent child care concern.  Whatever the case may be, acquiring instant life insurance can be an arduous task if not approached with the facts at hand. 

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Why Do People Buy Life Insurance

People mainly buy life insurance for two reasons: to protect their family and loved ones, and as investment or retirement savings vehicles.  For most consumers, protecting family members; especially spouses, in the event of the insured’s death is the most important factor in purchasing instant life insurance.  Surviving spouses require benefits to replace the income lost by the death of the policy holder, but they also require benefits for other purposes.  Marital debt, taxes, and final expenses of the deceased will need to be paid, and life insurance benefits can be utilized for this purpose. 

Many people also buy life insurance as a means of protecting children.  Benefits are often used to pay for child care expenses, medical expenses, and college tuition costs.  Trusts can be setup through a will that direct life insurance benefits to help alleviate living expenses for a child well into their thirties and beyond.  Dependent adults are also often included in a life insurance policy, as their care will still be required after the policy holder and caregiver is gone.          

Because many life insurance policies build cash value, they can be very useful as investment and/or savings vehicles.  By contributing premium payments to a whole life or universal life policy, cash is accumulated in the policy and is in turn invested by the insurance carrier.  The policy holder is credited with a percentage of the returns the provider realizes.  The cash value in the policy can be used to buy supplemental insurance, to take loans against, to offer as collateral, to take withdrawals from, as well as being offered as surety bonds.

People may also buy life insurance because it is offered free or nearly free of charge by major employers.  These plans often do not feature the same benefits of personal policies, but may be quite beneficial nonetheless, offering simple death benefits that are many times the base salary of the employee or insured.  These plans often are written in conjunction with short or long term disability plans.   

How Does Age Relate to Life Insurance Type

Age does not define the specific insurance needs of an individual; it only offers a reasonably accurate prediction of the likelihood that the person will die during a particular period of time.  As a result, age is the largest determining factor used by carriers in establishing the rate of life insurance premiums.  However, personal needs such as financial constraints often dictate what type of life insurance policy is needed.  For instance, consider a 60 year old man who needs whole life insurance but cannot afford it.  His best option may be to buy term life insurance, because even though he may outlive the insured period, he will at least have coverage for some time.

To further illustrate that age does not determine life insurance policy type, consider a 27 year old male with a small family.  Due to financial constraints and other factors, this person will most likely require an inexpensive term life policy that will protect the family during the time that they need it most.  However, imagine the same man but with no family, and enjoying a lucrative occupation.  This person may do well with a whole life policy that builds cash value and provides coverage for life to pay his debts and final expenses. 

So while age is a major factor for insurance companies in figuring the cost of premiums, it is not necessarily a major factor for the individual.  In fact, considering the age at which many parents are giving birth to children, it’s very plausible that a 25 year old woman may have the same insurance needs as a woman twenty years her senior! 

When Does the Need for Life Insurance Expire

The need for life insurance never expires.  Even in very old age, when most insurance companies would not renew or write a policy for a senior person, life insurance is still needed.  Social security pays pitiful death benefits totaling only a few hundred dollars.  Even if a person is senior and has no family, there will still be perhaps thousands in final expenses when the insured passes.  This could be in the form of funeral expenses, final medical expenses, and burial expenses.  For this reason, even very old people should maintain life insurance when possible. 

How Can Life Insurance Be Used in Estate Planning

Life insurance can be an effective way to plan for retirement and estate management.  Because the contributions and earnings in whole life and universal life policies grow tax free, wealth can be diverted into the policy as a tax shelter.  Additionally, benefits paid from the policy are also usually tax free, and can be utilized to pay existing or future estate taxes. 

As part of estate planning, a life insurance policy can be used as an effective means of transferring wealth.  Traditional inheritances or gifts are taxed at an exorbitant rate, but distributions from life insurance benefits are not taxed, thus providing a tax sheltered way to provide income or wealth for the next generation. 

Like a 401K plan or an IRA, a life insurance policy can be used in retirement planning as a savings and investment vehicle.  Contributions are invested and most life insurance plans guarantee a minimum return.  Provided that the cost of insurance does not increase substantially or the investment portfolio does not perform poorly, substantial savings can be realized over the long term.  Furthermore, the ability to borrow against accumulated cash value or to take withdrawals is a valuable and useful component to any savings vehicle. 

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