Income Replacement

• Life insurance can replace the income of a breadwinner in the event of his or her death. Newlyweds and new parents frequently purchase life insurance to provide a death benefit that can be invested to provide income for the family if the breadwinner should die. Term life insurance is generally affordable for young people in good health. A $1 million dollar life insurance death benefit, invested at 5 percent, can generate an income of $50,000 per year for the family in perpetuity, without spending down the principal.
  
  

Estate Taxes

• Life insurance provides a handy source of liquidity to pay expected estate taxes when a wealthy individual dies. Without life insurance in place to provide a large amount of ready cash, the deceased's beneficiaries may have a hard time raising the money necessary to pay the tax. If the deceased's assets are in real estate, for example, or in a closely held business that cannot be readily sold, life insurance allows the heirs to pay the tax without having to sell off assets at fire-sale prices to raise cash quickly.
  
  

Protect Business Partners

• If a partner in a closely held partnership dies, the surviving partner does not typically inherit the deceased's share of the business. Instead, that interest goes to the deceased partner's spouse or heirs, who may have little interest or expertise in running the business. In some cases, a small business can collapse and become worthless if an owner/operator dies. Life insurance provides a source of cash for the surviving partner to purchase the deceased's partner's business interest from the family. The business can remain intact, and the family gets cash, rather than a damaged business.
  
  

Key Person Insurance

• Life insurance can protect a business owner against the possibility of the death of a key employee, such as a highly productive salesperson, technician, vendor or customer. Such people are very difficult and expensive to replace. Life insurance can provide a critical cash infusion to a business while it seeks to replace the individual who has passed away.