What functions does life insurance serve?
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Asked May 7, 2013
A common misconception of life insurance is that it exists so that you can leave a bundle to your children when you die. While this may be true in some cases, it is not what life insurance is designed for, or even how experts will advise you to use it. Instead, life insurance is meant to take the burden off your survivors if you die in a number of ways, and leaving behind an inheritance is at the bottom of the list.
When you are getting life insurance quotes, experts advise you to calculate the needs of your immediate family for a period of time, usually up to about 5 years. That includes such things as a mortgage payment, utility bills, and regular purchases such as groceries. Any monthly bills your family has should be covered for that period of time or even longer.
Another purpose of life insurance is to allow your family the option of relocating. This could be important if your family has moved away from most of the family, so that they can get back home in the event of your death. You wouldn't want to leave your wife stuck in an unfamiliar place for years if you couldn't be there with her, and this is one of the most affordable ways to do that.
Similarly, your family has dreams and aspirations. Make sure that your life insurance policy includes the money for college tuition for your children. In fact, go ahead and set up your permanent life insurance policy to pay for college and maybe even help your children get into their first home after they graduate. Just because you couldn't be there to make it happen does not mean you cannot make it happen.
After the needs of your family have been seen to, the bills have been paid off, and the kids educated, you can consider adding a little more for that inheritance. In fact, you can set up the benefits of a life insurance policy to go into a trust which makes regular payments to your survivors for as long as you wish.
Answered May 7, 2013 by Anonymous