SECTION II- Uses of life insurance

Personal Uses of Life Insurance

Life insurance can solve a wide range of financial protection and wealth accumulation needs. Here we look at the additional advantages gained through the use of life insurance.

People need to pay the high cost of dying, if they are not to leave their families with this expense. Families need to be able to pay off the mortgage or provide rent and children's education must be provided for. The family must have income, whether or not the breadwinner lives to provide it.

Of course, not everyone has the same needs, but as the lives most of people and their needs are similar. Life insurance has features which enable it to meet the needs of widely varying life styles.

During a lifetime, individuals find themselves in various economic circumstances that directly affect their need for financial products. These changing financial situations, along with the uncertainty about how long an individual will live, form the basis of life insurance planning.

The Human Life Cycle

The human life cycle can be described in terms of three economic phases. Most people are "consumers" from birth to age twenty-two, during the growth and education phases of their lives. The work, or "savings" phase runs from the end of the education phase until retirement. (If a couple has children, then the "savings" phase continues until the children finish their "education" phase.) At retirement, people become "consumers" again. If they wish to have an adequate amount to "consume" during retirement, people need to build surplus during the working phase. They must consume less than they earn. Some people also want to build large enough estates to pass on assets to their heirs, or to a charity. Others only want to build an estate big enough to live on until they die.

Singles

The number of single people in the United States has increased over time. Many younger people are delaying marriage, many adults are single because of divorce, and others because of the death of their spouse.

If a single person dies leaving no dependents or outstanding financial obligations, that death is not likely to create a financial problem for others. Such a person needs only a modest amount of life insurance to cover funeral expenses and uninsured medical bills. However, single persons should realize that their insurance needs could change in the future, and they might be wise to purchase life insurance early in life. Premiums will be lower and insurance might be more easily available than later in life when the need might be greater.

For single adults a life policy will enable them to provide:

1. An immediate estate to pay their last expenses and any debts, including particularly for young adults; the cost of repaying college loans.
2. Guaranteed future insurability. While the single adult may not be able to keep healthy, he or she can remain insurable once covered.
3. Tax-deferred growth of cash values that may be used during retirement.