Planning for what happens after your passing requires compassion, a realistic outlook, and a long-term vision. Although you will not be around to address the concerns of your loved ones in the event of your death, you may want to ensure their financial welfare is secure. You may want to provide a legacy of sorts and know they’ll be able to sustain a comfortable and secure lifestyle on their own. These are some of the reasons to have or plan to get life insurance.
What exactly is life insurance, and how does it work?
Policyholders maintain contracts with insurance companies by making regular premium payments. In exchange, insurance companies agree to provide beneficiaries a lump-sum payment, a death benefit, at the policyholder’s death. Benefits are usually free of income tax requirements. People choose the type of life insurance they want based on their needs and goals.
What types of insurance policies are available?
Term life provides financial protection for a period of time. Premiums stay the same for the duration of coverage. Typically, premiums go up after the coverage period ends if the policy is renewed. Term life, which is sometimes called “pure life insurance,” is usually for 10, 20, or 30 years and is the least expensive option.
Term life coverage should last the number of years you expect to be paying bills with employment or other income. The payout should cover lost income as a result of your absence, the cost of services (like childcare) you may provide, and other expenses.
Universal life insurance provides lifetime coverage. Premium payments can be changed throughout the policy’s instatement. Premiums are usually higher than term life insurance. Policyholders often use universal life as part of a larger estate planning strategy to protect wealth transfers for beneficiaries.
Policyholders obtain whole life to provide lifetime coverage. Premiums, which are typically fixed, are usually higher than term life. Unlike term life, whole life retains cash value and may function as a form of savings. Estate planners also use whole life to help protect wealth transfers for beneficiaries.
Why is life insurance important?
Life insurance provides you and your loved ones with numerous advantages. Here are six:
1. It can replace income, especially if the primary wage earner dies. Benefits will help sustain your family’s quality of life.
2. It can cover funeral costs, which exceeds on average $7,000.
3. It can help eliminate or reduce outstanding debts, such as car payments, credit cards, or mortgages.
4. It can help cover children’s education.
5. It can help sustain or protect a business from financial loss, liabilities, or other unanticipated expenses. Business partners can be named as beneficiaries.
6. It can protect retirement savings. Retirement savings are often generated over a lifetime. Insurance helps ensure spouses and families still have adequate funds.
If you would like to discuss other financial strategies or life insurance options, give us a call. We’re happy to talk.