Why Do People Buy Life Insurance?

For most of us, our first experience with life insurance is when a friend, relative, or someone we know gets an insurance license. In my case, my father is an insurance agency manager. All I knew about the industry was that my father's commissions fed all of us, and kept that roof over our heads. You can say that I am a walking and breathing example that there is a life and a career in life insurance!

Unfortunately, how most people acquire life insurance is through someone they know, who got hired by a major insurance company not too long ago and calls you up one fine day to buy a policy underwritten by whatever company they represent. It is not bought, but rather sold to you. Did you really need life insurance? Or was it merely pushed to you by a salesperson?
While the latter seems to ring true, there are actually many reasons why you SHOULD purchase life insurance.

REASONS TO BUY LIFE INSURANCE
As I age, and now recently married, and handling my business, I have come to realize that life insurance is an indispensable and a foundation to my family finances. Over the years, life insurance has given my parents a peace of mind knowing that money would be available to protect us and to fund the education aspirations of my siblings; to keep our home, and maintain our family estate in a number of ways.
And now as I work it out with my wife, these are perhaps the same ways life insurance would work for us:

1. To Fund Final Expenses
The cost of a funeral and burial can easily run into the high 5 digits, and would never want my wife, parents, or future children to suffer financially in addition to emotionally upon my departure.
At the very least, the lifestyle that I have created for us remains unchanged with the funds to finance and support the obligations to the banks, and/or other services that we subscribe to.

2. To Cover Children's Expenses
Like most couples who want kids (and are gearing up for them), I want to ensure that my kids will be well taken care of and can afford a quality college education that both my wife and I had. For this reason, additional coverage is absolutely essential while we are young, healthy, and able to do so.

3. To replace the Spouse's Income
Like most families today, both my wife and I work and contribute to our family finances. If I myself or my wife had passed away any time between now and 20 years into the future, I would've needed to replace any one of our income, which was essential to our lifestyle. I also would need to hire help for domestic tasks which we currently share like cleaning the house, laundry, cooking, etc.

4. To Pay Off Debts
In addition to providing income to cover our living expenses, my family would need the funds to cover debts like mortgages, loans (our cars) so they wouldn't have to sell anything to stay solvent.
In some parts of the world, this kinds of funds is equivalent to preserving the family's dignity in every sense of the word.

5. To Buy a Business Partner's Shares
Since I came into the business of getting involved in my clients' professional partnerships, it is they who told me "I need insurance on my partner's life! And he needs one on my life too!"
The reason is so if one party dies, the remaining party would have enough cash to buy the deceased interests from his/her heirs, and pay the deceased's share of the company's obligations without having to sell the company altogether!
It works very well, and it keeps each other from having to worry about spouses and heirs who know nothing about their practices from coming into the picture, which in many cases almost certainly ruin the operations and sink the business altogether.

6. To Pay Off Taxes
Unpaid taxes can be steep, not to mention any penalties from unpaid taxes (if any)! So having an insurance policy in place to pay them is essential to avoid jeopardizing assets or funds built for retirement. The use of insurance for this purpose is most common, especially in parts of the world where an Estate Tax (Inheritance Tax) is to be paid! Larger estates usually uses Whole Life insurance policies to ensure that the coverage remains until the end of life.

How Much Coverage Should I Buy? 
The sum insured, or sometimes known as "death benefit" of an insurance policy (to be paid to your beneficiary) should be high enough to replace the income (after tax) you would have earned, should you have lived till the retirement age of 60 (or more in other parts of the world). In other words, the insurance policy replaces the income you should have earned but robbed of the chance to earn due to a premature death.

An adequate amount of insurance allows your family to continue their lifestyle, even though you and your income are no longer around. The actual amount that you should purchase depends upon your present and probable future incomes (increments?) for the next 8 to 10 years.

If you, like me, have special considerations for specific situations or circumstances affecting you or your family, or your existing budget for premiums should be communicated directly to your servicing agent/provider.
Remember: your agent/provider is only able to do his/her job as accurately as the information you supply to him/her.

Whole Life or Term? 
Some of us prefer to drive higher end cars such as a Mercedes Benz or a Jaguar, which often comes with all of the electronic gadgets that make driving safe and as easy as possible. Others prefer less of the gadgets and more of hands-on driving makes. They are equally reliable to their more expensive cousins, but require more attention throughout the journey.

Whole life is the "Jaguar" of insurance. Its providers try to do everything for you beginning from Day 1, specifically and intentionally investing a portion of your premiums so that the annual costs doesn't increase as you grow older. The premiums may be generally higher than a similar term policy with the same sum insured, but after all, the whole life insurance is intended to cover you for... your whole life!

Term insurance, on the other hand, is a stripped-down model of life insurance. In other words, the bare necessities. There are no excess premiums to be invested, no guarantees or promises beyond the end of the insured period (5, 10, 20, up to 30 years). The annual premium for term insurance are usually less than whole life. However, lacking the investment component, your premiums will rise once the term period expires (often substantially).

Both types of life insurance policies (or their forms of derivatives) have their unique benefits as well as their drawbacks. Both have their place depending on specific needs, desires, goals, and financial objectives of the purchaser. A knowledgeable professional insurance agent can help you devide which type of policy is best for you depending on your circumstances.
Whichever you select, be sure to always keep in mind and be sure that you have enough coverage to meet your objectives in the short term and the long term.
My parents and myself have spent many thousands of dollars in premiums for life insurance of both types, and through the claims experience of our customers as well as our own, not a single penny of their upkeep was ever regretted.

Final Word
Some people mistakenly believe that life insurance is a scam. This is due to the fact that the money for premiums is lost if death doesn't occur within the coverage period (in the case of term insurance), or because many people have bought from someone they know who were once new into the business but have left the insurance profession entirely, without ever knowing exactly what they have bought but nevertheless continued to pay their premiums into a ripe old age. Such naysayers compare life insurance protection to gambling, and forgo the initial objective for financial protection entirely.

There is really no bet - because you will die eventually, but nobody knows when. It could be later today, tomorrow, next year, or 50 years from now. Whenever it is, it is bound to happen. Life insurance protects your heirs from the unknowable financial impact on their lives, and helps them weather through an otherwise uncomfortable and difficult time of loss.