4 types of people who absolutely should have life insurance, according to a financial planner

4 types of people who absolutely should have life insurance, according to a financial planner

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  • Life insurance is a contract between you and an insurance company, in which the insurer agrees to pay a beneficiary upon your death.
  • Talking about what happens to your money after you die may seem morbid, but it’s worth it.
  • A financial planner recommends that business owners and student private borrowers purchase life insurance.

Life insurance is a contract between a person and a life insurance company, where the life insurance company agrees to pay a beneficiary – usually someone’s family member – if the person insured dies. The contract specifies how much money your beneficiaries will receive.

It might seem morbid to discuss such details with a complete stranger at a life insurance company, but financial planner Spencer Betts says it’s worth having that protection in place if the worst happens, and it doesn’t. will be cheap.

“Life insurance on someone between 40 and 60 is very cheap because there is a very low probability that you will die,” he explains.

Here are four types of people who should have life insurance, according to Betts.

1. People with private student loans

Federal student loans are discharged after the death of the borrower, but borrowers with private student loan debt may face different circumstances.

Private student loan debt you incurred on your own can be discharged without issue – but not always, each lender’s policy will be different – but private student loan debt incurred with co-signers will pass on to the co-signers if the loans were contracted before November 20, 2018. In accordance with a provision of the Economic Growth, Regulatory Relief, and Consumer Protection Act, co-signers must be released from the loan if it was contracted after November 20 2018.

A life insurance policy ensures that your co-signer or next of kin can cover your student loan debt, regardless of the student loan lender’s policy.

2. People with co-signers on their debts

Betts says, “If you’re single with no dependents and you have a $20,000 car loan, the automaker might repossess your car, but they won’t go after any other family members because nobody co-signed for you.” In contrast, co-signers are responsible for repaying outstanding debts after a person dies.

So if someone has co-signed a personal loan with you, for example, you’ll want to have a life insurance policy that covers the cost of that debt.

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3. Entrepreneurs who wish to pass on the family business to their children

If you’re a business owner and plan to pass your business on to your children after you die, life insurance may be more beneficial than you think, says Betts.

“If you die and are the sole owner of this business, the value of this business may be subject to estate tax. You may need life insurance to offset estate tax if you want to continue the family business, your family farm, or something like that.”

In the case of a partner-owned business, Betts says business partners can draft agreements about how business assets will be paid out, passed on, or divided in the event of a business partner’s death.

“Using a buy-sell agreement,” he says, “you can specify things like, ‘If my business partner dies, I’ll pay his family $1 million, or half of what the business is worth. business at the time of his death.’ “

A life insurance policy of which your business partner is the beneficiary ensures that they have these funds and that your family receives the financial support they need.

4. Parents of children with disabilities

Betts says parents of children with special needs should have life insurance to ensure their childcare costs are covered after they die. The child must not be the beneficiary of the parent’s policy. On the contrary, in some cases, a special needs trust would be more appropriate.

According to Betts, “That’s one of the biggest reasons to get life insurance that we see there. If you have children with special needs, you might need life insurance for someone one can help you care for your child or long-term dependent.”

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