Why Smart People Buy Life Insurance

Have you ever considered why people buy life insurance? I know the salesmen and the creators of the policies themselves have thought about it because if they didn’t these policies simply wouldn’t sell. Probably the greatest life insurance salesman ever once said that “selling is 98% understanding human beings and 2% product knowledge”. Another question that is worth exploring is why do some people not own any life insurance at all. Why would you buy life insurance?

• Love of FamilyMore often than not the reason people buy life insurance is because they care about what their loved ones will experience if they should die suddenly. This caring can be expressed in different ways. The Hawaiian people, I am told, have such a deep passion for the well being of their families that they will go to extreme limits to protect them. They tend to buy lots of life insurance as a result.There are others who purchase life insurance because of a deep sense of responsibility. They love their families but they are driven more by the fact that the family relies on them so they have to live up to what is expected of them.
• Tax AdvantagesSome people, especially the business minded, buy life insurance for the tax advantages the purchase provides. The death benefit of the policy is paid free of Federal Income Taxes more often than not. If the policy is part of your estate the proceeds are taxable.If you own cash value life insurance the cash value and dividends accumulate tax free. When you cash in the policy you will need to pay the taxes on the interest earned. The reason this is advantage is that these policies are usually cashed in round and about retirement time. Your income is likely to be less than when you were working so you would be in a lower tax bracket.
• Tax SheltersThe most highly paid life insurance salesmen are the ones who know the tax laws inside out. Here is how they do it. They are usually qualified Financial Planners. Some are Attorneys or Accountants. What they do is to show well off people legal ways of sheltering their income from Income Taxes. They save them a lot of money. As a result these clients think nothing of putting some of the money in a life insurance policy that they need anyway. They need to take out life insurance policies to protect their families. A large portion of an estate can easily go to pay estate taxes . These people take out life insurance policies sufficient to pay the taxes upon death.

The reasons we buy life insurance may vastly differ but everyone needs to buy some sort of a policy…if it is even just to take care of final expenses.