The importance of life insurance transcends monetary value by encapsulating emotional reassurance, legacy preservation and strategic financial planning.
While it is a crucial part of the financial planning process, it is also something that is often overlooked. According to Life Insurance Marketing Research Association (LIMRA), at least 106 million Americans, or 41% of Americans, don’t believe they have enough life insurance coverage.
Without life insurance, you may pass away with financial obligations that become the responsibility of your heirs. While there is no one-size-fits-all approach, here are three ways that life insurance can help:
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Creating a cash safety net and providing emotional security.
By carving out a pre-determined sum of money, life insurance helps ensure that dependents are not burdened with insurmountable financial challenges when a loved one passes away. Without this safety net, families might find themselves in the worst-case scenario of grappling with financial hardships, potentially jeopardizing their future and well-being.
Additionally, the peace of mind that life insurance can provide during unpredictable moments is invaluable. For example, if the main breadwinner in a relationship suddenly passes, the family will have a source for income replacement if their financial situation takes a turn for the worse. Knowing that loved ones will be cared for, debts will be settled, and dreams will be realized can help alleviate anxiety and foster a sense of stability for all.
2. Leveraging cash value.
Having a life insurance policy also serves as a strategic financial tool, offering tax advantages and investment opportunities. Depending on the type of policy selected, individuals can leverage life insurance to accumulate cash value over time.
This cash value component provides the flexibility for policyholders to access funds for various purposes, such as supplementing retirement income, covering unexpected expenses or pursuing lifelong dreams. However, it is important to note that withdrawing funds from your policy reduces the death benefit for your heirs if it is not paid back.
Earlier in my career, I worked as a financial adviser and wrote a policy for my client that included an investment feature to create cash value growth. That cash value was eventually used by my client when their business was struggling, providing them with much-needed liquidity when financial institutions would not. The liquidity allowed them to turn their business around, with enough success that they could repay the policy loan in full.
3. Leaving a lasting legacy.
The legacy that life insurance can provide may come in many different forms, from ensuring quality education for children to leaving behind an inheritance that can support future generations.
When working with the previously mentioned client, I had to deliver a life-changing $2 million check when they unfortunately became widowed. This experience allowed me to see firsthand the lasting legacy and support that their life insurance policy provided. The death benefits from her husband’s policy gave my client the means to provide for their two young children and money to support their business needs.
This one policy served as both a cash safety net in troubled times while her husband was living and a conduit for allowing their aspirations and accomplishments to endure when he was gone.
In essence, life insurance empowers individuals to live fully, knowing that legacy will endure, and loved ones will thrive, regardless of life's unpredictable twists and turns.
Related Content
- If You’re Retired, Do You Still Need Life Insurance?
- Five Financial Changes That Happen When Your Spouse Dies
- Are You Too Young for Life Insurance?
- What Is Indexed Universal Life Insurance and How Does It Work?
- Want to Feel Better About Life Insurance? Go Digital
-
The Most Tax-Friendly States for Investing in 2025 (Hint: There Are Two)State Taxes Living in one of these places could lower your 2025 investment taxes — especially if you invest in real estate.
-
Want To Retire at 55? See If You Can Answer These Five QuestionsWho said you can’t retire at 55? If you say yes to these questions, you may be on your way to an early retirement.
-
Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on RetirementWhile some provisions might help, others could push you into a higher tax bracket and raise your costs. Be strategic about Roth conversions, charitable donations, estate tax plans and health care expenditures.
-
One Small Step for Your Money, One Giant Leap for RetirementSaving enough for retirement can sound as daunting as walking on the moon. But what would your future look like if you took one small step toward it this year?
-
This Is What You Really Need to Know About Medicare, From a Financial ExpertHealth care costs are a significant retirement expense, and Medicare offers essential but complex coverage that requires careful planning. Here's how to navigate Medicare's various parts, enrollment periods and income-based costs.
-
I'm a Financial Planner: Could Partial Retirement Be the Right Move for You?Many Americans close to retirement are questioning whether they should take the full leap into retirement or continue to work part-time.
-
From Mortgages to Taxes to Estates: How to Prepare for Falling Interest RatesAs speculation grows that the Federal Reserve will soon start lowering interest rates, now is a good time to review your financial plans for housing, estate, taxes, investing and retirement to make the most of potential changes.
-
This Is How Lottery Winners Build Lasting Legacies, From a Financial ProfessionalWinning a massive lottery jackpot, like the recent $1.4 billion Powerball, requires seeking immediate legal and financial counsel, protecting your identity and winnings and planning your legacy.
-
I'm an Investment Strategist: This Is How the Fed's Next Rate Move Could Impact Your WalletInterest rate cuts might be coming, which could affect everything from your credit card debt to your mortgage. It's smart to prepare now — here's how.
-
I'm a Retirement Planner: These Are Three Common Tax Mistakes You Could Be Making With Your InvestmentsDon't pay more tax on your investments than you need to. You can keep more money in your pocket (or for retirement) by avoiding these three common mistakes.
