Updated: February 2016
Life insurance can be an important part of your financial strategies, helping to ensure a more secure financial future for your loved ones when you're gone.
Not only does life insurance help cover unexpected final expenses—it can also provide your family with a financial safety net or even serve as an inheritance.
Some of the uses for life insurance benefits may include:
Paying final costs: LifeHappens.org notes that life insurance policy benefits can be used to pay final expenses, including funeral or cremation costs, medical bills not covered by health insurance, estate administration fees or other unpaid obligations. Even expenses such as a mortgage balance can be covered by your benefit.
Paying off debt or replacing income: According to LifeHappens.org, life insurance benefits can help replace your income if you pass away. Your beneficiaries can use the money to help cover essential expenses, such as paying off a mortgage or securing college educations for your children.
Inheritance: The III suggests buying a policy with a named heir as a beneficiary in order to secure an inheritance for your loved ones. The death benefit can also serve as a supplement to other inheritance funds you may wish to leave your heirs.
Paying federal or state estate taxes: Your heirs may face an estate tax upon receiving their inheritance, depending upon the state of residence and the amount. The III suggests that life insurance benefits may be used to partially or completely offset this cost for your heirs. Consult with your life insurance provider or a financial professional for more information on your projected estate tax impact and life insurance benefit.
Charitable contributions: Life insurance policies can be created with your favorite charity as a named beneficiary, the III says. This can help ensure your philanthropic goals are met after you die, and that benefits are provided to your charity of choice — even if you don’t have a very large nest egg or estate.
Discussing your financial goals with a life insurance agent can help you clarify the right type of policy and benefit to meet your needs.