Purpose of Life Insurance A life insurance policy has several purposes:
- Maintain an income for the family:
Life insurance benefits are used to offset financial losses in case of death of the policy-holder.
- Mortgage and loan protection:
If a person has outstanding debts or loans at the time of death, life insurance benefits will help offset them.
- Insurance for a key person:
Death of a key person in a business can result in bankruptcy. Benefits in case of death are a tool to help a company overcome such a crisis.
- Buy-Sell agreements:
In the event of death of a partner, some partnerships require that the surviving partner buy the deceased partner’s interest in the business. Life insurance is a way to cover these acquisition costs.
- Estate Protection:
If an estate incurs taxation upon death of its owner, life insurance can cover tax payments to protect the value of the estate.