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Tax advantages of life insurance

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How aware are you of the benefits of owning life insurance? Each September, the LIFE Foundation (www.lifehappens.org) ramps up its public awareness campaign of life insurance, and all of the reasons and benefits why each of us need life insurance. Each year, they hire a celebrity spokesperson whose life was directly impacted by someone owning life insurance.

Why do I need life insurance, you may ask? For it to do any good, don't I have to die? The answer is a qualified 'maybe', since there are so many variables. But let's look at some of the primary benefits. First of all, when you die (it is when, not if, after all), the insurance benefit goes to the exact people you want to have it, and income tax-free. Secondly, there's not a more effective way to leverage your money. Life insurance can be defined as: The purchase of a large sum of money with discounted dollars, that becomes immediately available at the exact moment it's needed. A thousand dollars' worth of insurance costs a fraction of that. Compare that to your investment or retirement account that requires a thousand dollars be invested to have a thousand dollars. The money you invest is immediately at risk - interest rate risk, longevity risk, and the big one, market risk. Your life insurance is never at risk, unless you don't make timely premium payments.

But lets take a more in-depth look. There are three major types of life insurance: term, universal life and whole life. Whatever fills your needs and meets your budget should be most of your coverage. What are those needs? How about income replacement, for starters. If you own a home, your homeowners' insurance probably has full replacement. Your life insurance should, as well. A 35-year old making $60,000 per year, will make $1.8 million dollars, assuming no raises or cost-of-living adjustments to age 65. If you hadn't made it home last night, would your family be cared for? Remember, that income does lots of things: pays your mortgage and household expenses, provides money for retirement and your children's college costs, and overall, provides a standard of living to which your family has become accustomed. Review your current coverage for gaps, or, if you haven't gotten around to it, make a visit to the website listed above, and then sit down with an agent and order up some peace of mind.

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