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Many financial experts consider a term life insurance or whole life insurance policy to be the cornerstone of sound financial planning. A solid life insurance policy can be used to:
1. Help replace your income and provide financial security for your dependents. If you are the primary earner in your household and people depend on your income, life insurance can help replace that income if you die.
2. Help pay final expenses such as your funeral and burial costs, probate and other estate administration costs, debts, and medical expenses not covered by health insurance.
3. Create an inheritance for your heirs by buying a life insurance policy and naming them as beneficiaries.
4. Help pay federal and state inheritance and estate taxes. These are generally due within nine months of death and could absorb nearly half of your assets before a single dollar goes to your heirs. Life insurance benefits can pay estate taxes and settlement costs so that your heirs will not have to liquidate other assets or take a smaller inheritance.
5. Make significant charitable contributions. By making a charity the beneficiary of your life insurance, you can make a much larger contribution than if you donated the cash equivalent of the policy's premiums.
6. Create a source of savings. Some types of life insurance create a cash value that, if not paid out as a death benefit, can be borrowed or withdrawn on the owner's request.
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