Life insurance: The hidden costs of procrastination

Cliff Jumper / Wikipedia
Cliff Jumper. (Image via Wikipedia)

WASHINGTON, April 24, 2013 — It’s a truth universally acknowledged that most people, in the U.S. at least, don’t even like to think about the topic of life insurance. This, in turn, can lead to procrastination when it comes to making a decision on the right coverage and amount–until one becomes seriously ill or disabled.

Unfortunately, at this point, it’s now too late to make that life insurance decision, because it’s difficult – if not impossible – to obtain this type of coverage after you’ve taken a physical turn for the worse. From an emotional and financial standpoint, it’s really not much different from a base jumper who launches himself off a cliff only to remember he forgot to strap his parachute on.

When exactly is it “too late?” Well, that term can mean a variety of things. But overall, it refers to the inadvertent act of leaving those who count on your income or support to fend for themselves were you suddenly no longer here for them.

However, by being proactive, by getting ahead of the curve before you suffer a serious medical misfortune, it’s not only possible but easy to obtain the right kind and amount of life insurance and save money on your premiums at the same time. When contemplating this decision, here are a few key things to consider:

Payment of Debt

Imagine for a moment: if something were to happen to you today, how much debt would you leave behind for your family to deal with? Do you have a mortgage? A car payment? More than one? What about student loan balances, credit card debt, and/or any business or personal loans you’ve been working to pay down over the past several years?

Think about it. Without your income, just how much of a gap would there be between what is owed and how much income would be coming in without your paycheck each month? If the number is big – or for that matter, if there’s even a number at all – it’s probable that you need to cover that gap with life insurance.

While many people think that proceeds from life insurance are only meant to cover the amount of funeral costs – which can certainly be the case – these funds can also be used for so much more. Yet your loved ones can’t utilize any of these benefits if you don’t have adequate coverage or any coverage at all.

Replacement of Income

Without life insurance, you could also be leaving your spouse, children, and/or others who are depending on your income out in the cold. If, for instance, the payment of your mortgage or other important assets is dependent upon your income, the loss of those funds could cause a major, adverse lifestyle change, even including the possibility of your family having to sell their home at below market value, just to get out from under the monthly payments they can no longer afford.

If you are married and have a stay-at-home spouse and small children, the loss of your income due to an unexpected passing could have devastating consequences. The proceeds from a life insurance policy could provide the income that they need to carry on with everyday expenses such as food and utilities, not to mention that mortgage payment.

Keeping Future Promises

Having life insurance can also help you to keep future promises such as funding your child’s college tuition, wedding, or down payment on their first home in the event you’re no longer here to help them out yourself. Without those policy proceeds, years of saving and investing may still not provide the same amount of guaranteed funds.

Giving Uncle Sam His Share

One of the other big reasons you should consider owning life insurance is for the payment of estate taxes. Many people mistakenly believe that only the wealthy must pay estate tax at death. Unfortunately, that’s often not the case. Although many states lately have been phasing out or eliminating estate taxes at that level, others have yet to act. Do you live in one of those states?

Without the proper amount of coverage, your loved ones may be forced to come up with the money to pay these taxes from other resources such as savings or investments or the sales of other assets, oftentimes at below market value, particularly now in the still uncertain aftermath of the Great Recession.

Don’t Let It Be Too Late

Once you understand the true value of purchasing life insurance, it is important to purchase a policy sooner rather than later. Although this is an easy task to set aside, there are many good reasons to put it near the top of your list.

The premium that is charged for coverage is based in large part on your current age and health status when you apply. It goes without saying that as you get older, the premium tends to increase exponentially. Likewise, the risk of poor health also rises with age.

Even seemingly non-life-threatening ailments such as arthritis and high blood pressure can actually bump your policy expenses upward, as they can have a pronounced effect on overall life expectancy. Remember, you can’t insure the house if the garage is already on fire.

By purchasing a policy early in life, you can lock in coverage, not to mention a lower premium rate for the long term. This way, even if you were to encounter a serious health issue somewhere down the road, you and your loved ones would have the peace of mind knowing that important future financial events will be covered by your life insurance proceeds in the event you’re no longer available to address them yourself.

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