You’re financially reliant on another person - If you are receiving financial support from a parent or alimony from a former spouse, buying life insurance on them could provide comfort that your needs will be covered after their death
You’re looking out for your grandchildren - Some parents buy life insurance on the lives of their adult children for the benefit of their grandchildren. Their adult children may not have it in their budget to buy life insurance, leaving the grandparents with the option to buy a policy that makes sure their grandkids are protected.
You’re a business owner - If you own a business, you may buy life insurance on a business partner. This may allow you to be able to buy their interest in the company without the need to take on debt.
There are plenty of situations where it makes sense to buy life insurance on another person.
There are many different types of people you can buy life insurance on. Here are just a few of the most common types of people you can buy life insurance on and some helpful reasons why someone may consider this.
Spouse - Buying life insurance on a spouse — or ex-spouse — can be a valuable part of a financial plan. If your spouse is the family’s breadwinner, you might buy life insurance on your spouse to cover final expenses, including funeral expenses and unsettled health expenses. You could also put the life insurance payout toward income replacement, paying off your mortgage or estate planning.
Children - Many people buy life insurance on their minor child to protect their future insurability or to provide some money for them through the cash value account. Children are more likely to get stronger rates with no-exam life insurance because they’re young and healthy.
Grandchildren - A common strategy is for grandparents to buy a life insurance policy on their grandchildren. This is a nice legacy gift that protects your grandchildren’s future insurability, provides some cash value later in life and reminds the grandkids of their legacy.
Business partners - If your business partner were to pass away unexpectedly, how could your business handle buying out the partner’s family? This is why it’s common to have a buy-sell agreement with your business partner. Buy-sell agreements are most commonly funded with term insurance.
Key employees - Making sure your company can survive and thrive after the death of a key person is important. Having a life insurance fund the replacement of revenue lost or new expenses is important to your livelihood. These policies are often whole life insurance because it lasts the life of the insured and allows the business, as the policyholder, to build cash value.
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