Why You Would Buy Life Insurance?
Love is usually the motivating factor to buy life insurance. We love
those who depend upon us financially and want to be sure that they are
well taken care of should something happen to us. We love our family
enough to face the reality of our own death and realize that it could
come at a young age. Who would care for our children? How could our
spouse support the family and be there to provide all of their needs?
These are the realities of life and what leads us to consider purchasing
life insurance in the first place.
Not everyone needs a life insurance policy. Just as a person who does not have an automobile does not need car insurance, a person who has no one depending on them financially does not need life insurance. Life insurance is not necessary if your survivors are well off enough that they can meet their financial needs with their own resources. If your survivor were your spouse who earns a high enough income to easily support them, than a policy would not be needed in this instance either.
People who do have someone who depends on their income definitely need to purchase a life insurance policy. Anyone who needs your financial support, spouse, children, adult parents, all would benefit from a life insurance policy and possibly be unable to make ends meet without it.
People who provide necessary services that would have to be paid for in their absence. The stay-at-home mom is the prime example of this need. If the father were supporting the family, someone would have to be employed to care for the home and children. This person would require a salary that is not, at this time, in the budget. A life insurance policy, along with a home insurance policy, would help to meet this expense and keep the family running on an even keel. There are, however, other examples of this need. A surviving spouse may want to spend additional time with the family and cut back on their employment hours, thereby reducing their salary. This would reduce the budget and additional funds could be provided by the life insurance policy.
Uses of Life Insurance
The death benefit realized by the survivor is the main reason for buying life insurance. By leaving a life insurance policy behind, you immediately create an estate that did not exist earlier. The benefit of a life insurance policy is immediately paid upon proof of your death and not tied up in legal processes the way a savings account or stock portfolio can be involved in probate.
Other ways that life insurance can be extremely helpful are:
- Paying off a home mortgage or other debts at time of death.
- Providing lump sum payments to children at a specific age.
- Providing an education or an income for children.
- Charitable bequests.
- Providing a retirement income.
- Establishing a regular income for survivors.
- Accumulating savings.
- Setting up an estate plan.
How A Life Insurance Company Works
"Pooling risks" and "the mathematical law of numbers" play a large part
in the operation of a life insurance company. In a sense, life insurance
could be related to gambling. The company is gambling that you will live
a long life while the insured is covering his risk in case of an early
death. An insured person accepts the cost (premium) in order to avoid a
much larger future loss (lifetime earnings).
The concept of insurance in general is the "pooling of risks". A group of people shares the risks of all. Each contributes an equitable amount and when one dies, the heirs are allowed to draw from the fund. "Sharing the risk" means that if one person dies after making only two payments, the others will probably live long, healthy lives and accumulate a large amount of premiums into their policies.
Although an insurance company cannot foresee the death of an individual, by using mortality tables, they can accurately estimate the number of deaths in a certain period for a large number of insureds. This is how premiums and Health Insurance Quotes are determined and financial stability is maintained.
Premiums for life insurance policies generally reflect the predictable
level of mortality. Premiums are usually based on the age of the insured
at the time the policy is issued. Purchasing a policy at a young age can
be a large advantage. Of course, the older the insured, the higher the
mortality rate, therefore, older insureds will pay higher premiums for
identical coverages.
Assets underlying the reserves of policies are invested and earnings are generally used to cover some of the insurance costs. All insurers seek the highest, safest yields for their policyholders in order to minimize the cost of the policies. Earnings are a result of investments in a wide range of categories from real estate to bonds and stocks. Stock investments, however, are limited because of the large fluctuations in the stock market that would not support the promise of life insurance companies' to provide financial security.