Source: Forbes.com

Source: Forbes.com

Does Everybody Needs Life Insurance? A question that an individual should know the answer. Well my answer is “It depends”, it depends on what? Perhaps my points stated below might give you an idea of having life insurance, or just forgetting the idea, You will have to decide after treading this blog post.

Insurance aims to replace the income of the person being insured.

The insurance can serve as an income replacement, so if a person is the bread winner of the family and if someone depends on his income, definitely he needs a life insurance. Most especially to all fathers working for their family. A non-working wife, might not need an insurance if her main purpose is just for income replacement. But of course there are still some other purpose in addition to income replacement.

Have you think of a situation that if your life was taken away while your love ones are still studying or while you are paying for a house or you have other fixed monthly expenses? As a follow up question, did you ever think on what will happen to your love ones when they are left with all the burdens? For sure it will be very difficult for them.

Have you heard about Estate Tax?

Have you heard about the Estate Tax? Estate Tax is the tax imposed on all the estate left by a dead person. Meaning that if a person dies and he have estates left (money in the bank, House and Lot under his/her name, Car,  bank in the money, mutual funds, any paper asset), all estate will be subjected to estate tax before it could be transferred to the rightful heir. If the rightful heir does not have money to pay for the estate tax he may resort to two options:

  • Borrow money to friends of relatives, then pay the estate tax and pay bank the relatives
  • Sell the estate on a very low amount and make an agreement with the buyer to pay all the estate tax on your behalf.

Normally option # 2, is being chosen by the heir if there is no fund to be used in collecting the estate. But normally option # 2 will make your estate with a very low cost compared to the assessed value of the estate.

Estate Tax is subjected to time frame for paying the text.

A wise decision is to calculate your total asset, and check with the prevailing estate tax law the equivalent amount and make sure that the owner of the asset is insured on more than the amount required.

Insurance money can be paid to the beneficiary after the claimant prove that the insured person died in a way accepted as stipulated in the contract. The beneficiary can take the life insurance proceeds free of tax ( Check this article)

“(B) Exclusions from Gross Income. — The following items shall not be included in gross income and shall be exempt from taxation under this title:

Life Insurance. — The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise, but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income.”

Estate Tax filing has also a deadline:

Deadlines

File the return within six (6) months from decedent’s death. However, the Commissioner may, in meritorious cases, grant extension not exceeding thirty (30) days.

I hope that this article will help you decide to get or not to get a Life Insurance. I may not be an expert in law, but I hope this post gives you an idea about the importance of Life Insurance.