Life Insurance: Is it Right for You?
Though Life Insurance is neither an investment plan nor a savings scheme, it still plays a significant role in the financial portfolio of most individuals. The main purpose of Life Insurance is to protect the dependents of a person from financial loss in the event of his death. Financial obligations arise out of many situations in life like when getting married or divorced, having a baby, buying a house, sending your child to college, starting a business, taking care of a parent who is aged or sick or on retirement. If a person is shouldering these responsibilities he must ensure that these obligations continue to be fulfilled even after his death. If he has a family who depends upon his earning capacity, he is a perfect candidate for life insurance. A person should consider the long term as well as the short-term financial obligations to decide whether he needs life insurance. The questions to ask are:
1. Do you have people including family and business partners who are financially dependent upon you over a long period of time?
2. In the event of your death, do your dependents have enough assets and resources including liquid cash to take care of all their needs and to pay off your financial debts? The second question requires a further assessment of the short-term financial needs of the family of the deceased. These include working out the following factors: Inheritance procedures can be time consuming and the family will need funds till they get access to the property of the deceased. The availability of other liquid assets like bank accounts or stocks can reduce dependency on life insurance. The existence of a large amount of non-liquid assets as against liquid assets makes it necessary to have insurance. The amount of debts and taxes the person stands to owe after his death. Businessmen must ensure there is enough cash flow in the business for his inheritors to maintain his business. Considering the above questions, one would find most people do need life insurance, though one can do without it if one has no dependents or young kids to support. Still, other obligations like a home mortgage or a sole proprietary business or planning for a comfortable retirement for yourself or your spouse are some of the reasons why a life insurance is still a good financial program to pick up.
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