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What is Life Insurance?
Life Insurance policies are legal contracts issued by a life insurance company, where the insurance company makes a certain promise to the insured and to the beneficiary or beneficiaries of the insured. In case of the death of the insured, the insurance company will pay a lump sum of money to the beneficiary. This money is usually received tax free to the beneficiary.
Why do people buy Life Insurance?
There are many reasons for buying life insurance, but the main reason is that the insured sees that he or she has some debt that would continue beyond his or her death. The insured has a sense that he or she wants this debt cleared for his or her beneficiaries.
Here are some typical reasons why people buy life insurance:
- To provide income for a surviving spouse
- To pay off a mortgage or other large expenses
- To fund college education for one’s children
- To make a significant charitable contribution to a hospital, university or other institution
- To pay off the estate taxes of wealthy parents
- To provide key-person life insurance in a business situation
- To fund a buy-sell agreement between partners of a business
- To provide money for the care of one’s disabled children or parents
- To provide emergency funds for a loved one
Sometimes, a life insurance policy is the ultimate love letter between two people.
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