Buying life insurance is so very important. It is an integral fundamental in any sound financial plan. The type and amount of coverage you select will depend on why you need to buy your policy.
Who Needs Life Insurance?
It seems to me that everyone needs some type of policy at some time during their lifetime. A single person with no dependents has no pressing need for a policy as all that is required is sufficient funds to pay final expenses and probably funds to offset estate taxes. A single person with children definitely has a need for coverage though. This person needs to calculate how much income would be required to carry the children through to the end of college years then determine the amount of life insurance that would provide this income, before buying life insurance.
A married person with or without children needs some type of policy as each one needs to make certain that the surviving spouse as well as the children can survive without his or her income. These people may also need to guarantee that the mortgage is paid off if they have one and if estate taxes are likely to become an issue then sufficient cash should be provided for this eventuality.
What about business owners? If you are a shareholder in a small business or a partner you definitely need some life coverage. Who will own your partners stock if s/he should die suddenly? You can be certain this deceased partner would want his or her spouse to own the shares. Does the spouse know anything about the business? Will you end up working doubly hard to provide for his family while his wife learns the business? Does she want to learn and get involved?
Your business partner may be thinking the same way. What if my partner dies? There is a simple solution to this problem but you will end up buying life insurance for certain. Here is how it works.
You have your attorney draw up a buy sell agreement that would stipulate that the surviving shareholder or shareholders will buy the stock owned by the deceased stockholder at a predetermined price. This price should be adjusted each year so that the survivors of the deceased gets a fair price for his or her shares. Where is the money going to come from to buy these shares? Each shareholder would have a life insurance policy on his or her life in the amount of the value of the shares.
The policies would be owned by and be paid by the corporation or the partnership. The corporation or partnership would be the beneficiary of the policies. Upon the death of a partner or stockholder the money paid by the insurance company would be used to buy the portion of the company now owned by the heirs of the deceased.
What about key man life insurance? Every successful business has an employee whose absence would be devastating to the business. What if this employee should die; would the business continue on profitably? How long would it take to replace this employee? How long would this new employee likely take to get up to the level of your deceased key employee? What would it cost? Determine this and put a dollar value on it. Buying life insurance on this key person in that amount is essential.