1. To meet goals if your children are in college and/or not completely financially independent, life insurance can help "finish the job". Although you may have saved enough for tuition, the kids' living expenses (e.g., room and board, laundry, food, entertainment, activity costs, etc.) continue, but not social security benefit payments for the surviving spouse and children, they stop when the kids leave high school.
2. To support other dependents. If you have parents, disabled adult children, or others who depend on you for financial support, life insurance would continue this support if you die before they do.
3. To cover the Social Security " blackout period". A recent study showed that 5 percent of married women ages 51 - 64 were poor, but 20 percent of widows the same age were poor. This happens because many people don't plan for life insurance to pay income to the surviving spouse after their kids are older. As previously noted, Social Security doesn't pay anything from when the youngest child leaves high school until the surviving spouse applies for benefits at the minimum age of 60. This interval is called the "blackout period" where no benefits are paid.
4. To meet commitments based on two incomes. Most two-earner couples make financial commitments (e.g., home mortgage, loans, leases, etc.) based on their combined income. Life insurance on each earner enables the survivor to continue to meet those commitments.
5. To pay unplanned expenses caused by an early death. Young people don't generally plan to have savings available to pay for funeral and burial costs, final medical expenses, estate administration and transfer costs, and federal and state income and estate taxes. Life insurance can cover these costs, which can easily reach tens of thousands of dollars.
6. To create a financial "safety net". Conventional wisdom says each household should have an "emergency fund" equal to about three to six months of expenses, to meet unavoidable expenses. If the household does not already have an emergency fund, the post death family will be even more financially vulnerable without one. Futhermore, it might also be somewhat more difficult for the survivors to obtain credit. Life insurance can solve this problem
7. To offset lost income if a spouse dies after beginning Social Security retirement benefits. When a couple retires and begins receiving Social Security retirement benefits, each one receives an income. The earner with the larger pre-retiremnt income gets a benefit based on that income, and the person with the smaller (or no) pre-retirement income gets either a benefit based on his or her own earnings or half of the spouse's Social Security benefit, whichever is greater. When one spouse dies, the larger retirement benefit continues but the second benefit stops. That is, in effect, a 33 % income reduction. Life insurance can compensate for this income drop.
8. To provide bequests to heirs and charities. To be sure that your heirs and/or favorite charities get money after your death, designate some or all of your life insurance benefits to go to them. This is particularly valuable, if without the life insurance, your executor would have to liquidate other assets to meet this objective.
Copyright (c) 2011 Antonio Filippone