Many financial professionals believe that life insurance is the foundation of an integral financial Strategy. Because of its potential high yield and its tax-favored benefits, it can be used to solve several fundamental financial problems in life.

We can use life insurance to replace income for your love ones. If you have people who depend on your income, life insurance can replace that income for them if you die. The most common case of this is a father with young children or it can also apply to couples in which the survivor would be financially stricken by the income lost through the death of a partner, and to dependent adults, such as parents, siblings or adult children who continue to rely on you financially.

Life insurance benefits can pay estate taxes so that your loved ones will not have to liquidate other assets or take a smaller inheritance. Changes in the federal "death" tax rules between now and January 1, 2011 will likely lessen the impact of this tax on some people, but some states are offsetting those federal decreases with increases in their state-level "death" taxes.(1)

A very useful reason why most of the people buy life insurance is to cover final expenses
like your funeral and burial costs, probate and other estate administration costs, debts and medical expenses that are not covered by health insurance.

Another powerful motivation is to create an estate for your heirs. You can create an inheritance by buying a life insurance policy and naming them as beneficiaries.

There are many other uses for life insurance if you are using it based on its death benefits, but also you can use an insurance policy based on its living benefits like creating a source of savings for retirement or education. Some types of life insurance create a cash value that, if not paid out as a death benefit, can be borrowed or withdrawn on the owner's request. Since most people make paying their life insurance policy premiums a high priority, buying a cash-value type policy can create a kind of "forced" savings plan. Besides, the interest credited is tax deferred and tax exempt if the money is paid as a death claim.

Another possibility for those who love philanthropy is 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.