Life InsuranceAs we grow older, get married, build families and start businesses, we come to realize more and more that life insurance is a fundamental part of having a sound financial plan. Depending on your type of policy, life insurance is fairly cheap, which means there’s no excuse not to get coverage now. Plus, over the years, you’ll find comfort in knowing money will be available to protect your loved ones in the event of your passing. Not sure how much coverage you need, use the Calculator on the right to find out. Here are a few other reasons why having life insurance is important.
Reasons You May Need Life InsuranceTO PROTECT YOUR FAMILY AND LOVED ONES
If your loved ones depend on your financial support for their livelihood, then life insurance is a must, because it replaces your income when you die. This is especially important for parents of young children or adults who would find it difficult to sustain their standard of living if they no longer had access to the income provide by their partner. You will also need to provide enough money to cover the costs of hiring someone to cover the day-to-day household tasks, like cleaning, laundry, cooking, childcare and everything else a growing family needs. TO LEAVE AN INHERITANCE Even if you don’t have any other assets to pass to your heirs, you can create an inheritance by buying a life insurance policy and naming them as beneficiaries. This is a great way to set your kids up for a solid financial future and provide for any monetary needs that will arise. TO PAY OFF DEBTS AND OTHER EXPENSES In addition to providing income to cover everyday living expenses, your family needs insurance to cover any outstanding debts, like the mortgage, credit cards and car loans. Other expenses include funeral and burial costs that can easily run into the tens of thousands of dollars. You don’t want your spouse, parents, children or other loved ones to be left with any extra financial burden in addition to the emotional burden they’re already suffering. TO ADD MORE FINANCIAL SECURITY Like most parents you probably want to know your kids will be well taken care of when you’re gone. You not only want them to get a quality college education, but to provide for other life ventures like getting married or starting a business. For this reason, additional coverage is absolutely essential while your kids are still at home. TO BRING PEACE OF MIND We can’t know when we’ll pass away. It could be today, tomorrow or 50 years from now, but it will happen eventually. No amount of money could ever replace a person. But more than anything, life insurance can help provide protection for the uncertainties in life. Without a doubt, having life insurance coverage will bring you and your family peace of mind. It’s one thing you can be sure of and you’ll no longer have to question whether they’ll be taken care of when you’re gone. Life insurance protects your heirs from the unknown and helps them through an otherwise difficult time of loss. Types of Life InsuranceTerm InsuranceTerm insurance is basic, inexpensive and easy to understand. It gives you all the coverage you need and none that you don't. That's why it's the best choice for almost everyone.
As the name implies, a term insurance policy is good for a specific period of time; that can be one year, 10 years, 20 years or even up to 30 years. Given that you generally need life insurance for a specific amount of time, just pick the term that fits with the time you need coverage. If you die during that term, your beneficiaries get a payout, known as the death benefit. If you die after the term expires, there's no payout. One of the biggest advantages of term insurance is its lower initial cost in comparison to permanent insurance. Why is it cheaper when initially purchased? Because with term insurance, you’re generally just paying for the death benefit, the lump sum payment your beneficiaries will receive if you die during the term of the policy. With most permanent policies, your premiums help fund the death benefit and can accumulate cash value. Term insurance is often a good choice for people in their family-formation years, especially if they’re on a tight budget, because it allows them to buy high levels of coverage when the need for protection is often greatest. Term insurance is also a good option for covering needs that will disappear in time. For instance, if paying for college is a major financial concern but you’re pretty sure that you won’t need life insurance coverage after the kids graduate, than it might make sense to buy a term policy that’ll get you through the college years. Permanent Life Insurance CoveragePermanent life insurance is different from term insurance because it offers both death benefit protection, as well as a cash value component. It also differs because, as the name suggests, it does not have a time limit like term insurance, but rather is intended to last for the remainder of the insured's lifetime – provided that the premium is paid. There are many different types of permanent life insurance.
Whole Life Insurance Coverage |
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The simplest type of permanent life insurance coverage is whole life. With this type of coverage, the premium amount is locked in and will remain the same throughout the entire lifetime of the policy. This can be helpful for those who need to stick to a budget. It also means that if a person purchases a whole life policy at a very young age, they will still pay the same amount of premium when they get older – regardless of advancing age, or even an adverse health issue. In some cases, where a person's pre-existing conditions require the individual to buy high risk life insurance, some graded whole life policies are the only option.
The cash that is in the cash value component of a whole life insurance policy is allowed to grow on a tax-deferred basis. This means that the gain on these funds will not be taxed until or unless they are withdrawn – allowing them to compound exponentially over time.
At first, the cash in a whole life insurance policy will grow slowly. This is because the majority of the early premium dollars will go towards paying the agent's commission and the insurance costs. However, over the years, the cash in a whole life policy can steadily grow, often with a minimum guaranteed rate of return.
Some whole life insurance policies will even provide dividends to their policyholders. Because these are considered to be a return of premium to the policyholder, they are also not taxed. Dividends can also help the cash value in a policy grow significantly – although they are never guaranteed.
The cash that is in the cash value component of a whole life insurance policy is allowed to grow on a tax-deferred basis. This means that the gain on these funds will not be taxed until or unless they are withdrawn – allowing them to compound exponentially over time.
At first, the cash in a whole life insurance policy will grow slowly. This is because the majority of the early premium dollars will go towards paying the agent's commission and the insurance costs. However, over the years, the cash in a whole life policy can steadily grow, often with a minimum guaranteed rate of return.
Some whole life insurance policies will even provide dividends to their policyholders. Because these are considered to be a return of premium to the policyholder, they are also not taxed. Dividends can also help the cash value in a policy grow significantly – although they are never guaranteed.
Universal Life Insurance Coverage
Another form of permanent coverage is universal life insurance. This type of life insurance also provides a death benefit and a cash value component where the funds are allowed to grow tax-deferred.
Universal life insurance is more flexible than whole life coverage, though. This is because the policyholder is allowed – within certain guidelines – to choose how much of his or her premium dollars will go towards the policy's death benefit, and how much will go towards the policy's cash value.
Because universal life is a permanent life insurance policy, the policyholder will have access to their cash value account. So, just as with a whole life plan, the cash can be borrowed or withdrawn for any reason – including paying off debt, supplementing retirement income, or even going on a vacation.
Universal life insurance is more flexible than whole life coverage, though. This is because the policyholder is allowed – within certain guidelines – to choose how much of his or her premium dollars will go towards the policy's death benefit, and how much will go towards the policy's cash value.
Because universal life is a permanent life insurance policy, the policyholder will have access to their cash value account. So, just as with a whole life plan, the cash can be borrowed or withdrawn for any reason – including paying off debt, supplementing retirement income, or even going on a vacation.
Final Expense Life Insurance Coverage
Final expense life insurance coverage is often called burial insurance and is purchased by those who are considered “seniors,” or between the ages of 50 and 85 – although there are some insurance companies who will sell policies to applicants who are older. This type of coverage is typically geared towards those who want to ensure that their loved ones will not be saddled with the high cost of a funeral and other related expenses such as a headstone, burial, flowers, and memorial service.
Today, the average cost of such items nationwide can be in the range of $10,000 – an amount that many families just simply do not have readily available. So, a final expense life insurance policy can help.
Final expense coverage can be either term or permanent – and oftentimes the underwriting requirements are not stringent. Also, the premium cost for this type of coverage is usually not high, even though the applicants are usually older.
Today, the average cost of such items nationwide can be in the range of $10,000 – an amount that many families just simply do not have readily available. So, a final expense life insurance policy can help.
Final expense coverage can be either term or permanent – and oftentimes the underwriting requirements are not stringent. Also, the premium cost for this type of coverage is usually not high, even though the applicants are usually older.