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September 11, 2020

Can You Guess the Top 5 Reasons People Buy Life Insurance?

According to the 2020 Insurance Barometer Study by Life Happens and LIMRA, nearly half (44%) of Americans would feel a heavy financial burden within 6 months if the primary breadwinner in the family were to die. About 28% would feel it within a month.

Here's the Gist

Despite these findings, only 54% of American adults have life insurance. What prompts them to buy it? The study found 5 common reasons that stick out. People want to:

  • Cover their burial expenses and final costs
  • Facilitate a transfer of wealth to their children
  • Replace income for their families
  • Supplement their own retirement income
  • Pay off the mortgage

Let’s explore a bit further what this means!

1. Paying For Burial Costs and Final Expenses

How much does it cost to die? The answer might surprise you.

There are many factors that affect the price of funerals from the kind of coffin you choose to the type of burial ceremony. On average, they cost about $15,000. That’s not a bill anybody wants their family stuck trying to pay. Adjusting to life without you is going to be difficult enough without adding this financial burden.    

2. Transferring Wealth to Their Kids

If you have a large estate, it can be easy to overlook buying life insurance. Why buy life insurance? After all, your kids will be receiving a sizable inheritance that can be used for college and whatever else they need to get set up for life on their own.

Unfortunately, a large portion of that estate will be eaten away by estate taxes and capital gains taxes that become due at your death. Life insurance can pay off those taxes and preserve your children’s inheritance.

People in this situation usually opt for some type of permanent life insurance as opposed to term life insurance to ensure coverage to the end of life.

3. Replacing Lost Income

If you are the primary or sole wage earner, this is most important as your family heavily depends on your earnings. However, in about half of married-couple households with children, both parents work, often out of necessity. Even if you earn less than your spouse, your income is still necessary to maintain your home and life insurance can replace your wages.

Additionally, even if you are an unemployed spouse you might need life insurance. The surviving spouse may have to pay for childcare or other expenses in the event of your death and may not be able to afford the additional burden.

4. Supplementing Retirement Income

Some types of life insurance — like whole life or universal life — come with a built-in savings vehicle or cash value. As this amount accumulates, you can borrow from your own policy to supplement your retirement income. When you die, the policy proceeds pay off your loan and your beneficiaries receive the rest.

With a whole life policy, you can also surrender your policy before you die and receive a cash-out amount that goes to you instead of your beneficiaries. This can be handy when you need coverage for the main income-earning years of your life. However, once your kids are grown and/or other financial responsibilities lessen, you don’t need the same amount of coverage and you get to enjoy the payout instead

5. Paying Off the Mortgage

Mortgage debt is the largest type of debt that most people have. On average, people owe $202,284 on their mortgage and the median monthly mortgage payment is $1,100.

Your family might be able to make the mortgage payment, but how much of a struggle would it be? Even if they can pay it for a while, they might not be able to keep paying it long-term. Regardless, no one wants to leave their family struggling like this. A life insurance policy with enough coverage will take care of this problem for them.

Your life for a house may feel like a paltry comparison, but it’s far better than leaving your family grieving and homeless.

Looking for Life Insurance?

These are the most common reasons that people purchase life insurance according to the 2020 Insurance Barometer Study by Life Happens and LIMRA. Do any of these reasons resonate with you?

Life insurance, especially for the young, doesn’t seem like an immediate need and it’s easy to put it off – it’s part of the top 6 reasons people don’t buy life insurance. However, it’s one of the most unselfish things you can do for your family and take care of them in their time of need.

See how inexpensive peace of mind can be and how much easier it is to get coverage online.