As one gains assets in life it is important to ensure that these acquired items remain in one’s family or that any debts remaining can be paid off without financially disrupting a devastating family in the event of a loved one’s death. Family members may have heavily relied on one’s income and therefore the lack of this income amount can create a heavy burden on an individual’s spouse, dependents and loved ones.
What Is Life Insurance?
Life Insurance can provide financial protection against any financial loss of one’s family resulting in the unforeseen death of the insured. It provides tax free funds to those dependents, in the case of premature death, that can be useful in paying off final expenses such as credit cards, taxes, or mortgage payments. Further, funds can be used for continuing expenses for the needs of day to day living for a spouse and children. This guarantees financial security for the people you love the most.
In addition, life insurance protects your estate. Property that is willed to a person is subjected to capital gain taxes which can be a burden on the beneficiary if they cannot afford these costs. This could result in the loss of property. Life insurance pays this capital gain tax.
Should I Buy Life Insurance?
All individuals should consider purchasing life insurance policies regardless of income level, marital status (single or married), number of dependents (children, spouses, and/or parents) or employment type. Everyone wants to help guarantee that their loved one`s financial needs are met in the event of death. Depending on when you purchase a life insurance policy, cash reserves built up can be used for future expenses such as a child’s post secondary education or as retirement savings. The earlier you purchase your life insurance policy, the lower the premium costs will be.
It is always important to evaluate your financial and family circumstances in order to determine which life insurance policy is right for you. By consulting an insurance agent you are able to understand the pros and cons of the different insurance policies. Also be aware of any fine print or conditions of your insurance policy so that your family does not have to suffer after your unforeseen death.
Types of Life Insurance Policies
There are two different forms of life insurance policies that are available to individuals; term and permanent contracts. Each has its own benefit for individuals depending on one’s current needs and goals.
Permanent Life Insurance
Permanent life insurance appeals to many individuals as the policy covers until the insured’s death. Therefore, because of this key feature, permanent life insurance policies typically do not expire and are not renewed because you are covered for life. This is vital for estate planning and family financial obligations.
There are several subtypes to permanent life insurance including universal life insurance and whole life insurance. Each subtype carries its own benefit for the insured depending on the needs of the individual such as estate planning, insurance to provide for beneficiaries or building collateral.
Universal Life Insurance
Universal permanent life insurance provides the most flexibility than any other permanent life insurance and is a combination of insurance and investments. Because of this combination universal life insurance is usually referred to as an interest rate sensitive account. The value of the account if determined by the total investments included minus the monthly expense deductions.
Policy owners are able to choose from different investment options as well as choose between the costs of insurance selections and death benefit options. These choices are make this type of permanent life insurance so flexible in that it can adapt to the needs of the insured. Since this policy is a form of permanent life insurance it is an essential part of estate and tax planning.
This policy contract offers a choice of yearly renewable term (YRT) costs or level cost of insurance (LCOI). The policy owner can choose a level amount equal to the face amount of the policy or the face amount plus the cash value that has accumulated under the policy.
Whole life permanent insurance is designed so that the premiums costs remain the same and are paid continuously over the insured’s lifetime. However, certain contracts may implement a limited payment whole life policy, where the premiums are paid over a specific period of time or up to a certain age. The death benefit to be paid to the named beneficiary is the policy’s face amount.
Not only can this type of permanent policy provide financial security to your beneficiary through the death benefit, but in the initial policy years the insured can pay more for the coverage than required which will build up cash reserves. This reserve amount will be carried over to each premium payment and therefore create a compound growth on savings. Insured individuals can choose to surrender the policy in order to receive the cash value or they can choose to remove the cash value as a loan against the policy.
Term Life Insurance
Term life insurance provides life insurance for a set time frame which is available for 1, 5, 10, 15, or 20 years. It carries the same amount of coverage options except is created only to cover for a specific period of time. Individuals choose this type of term insurance in order to protect themselves during times of heavy financial obligations. For instance, a person may choose to purchase term life insurance for 25 years in order to cover their mortgage term while they also have children attending university institutions.
Alternately, rather than purchasing for a set year term, one can purchase term life insurance up to a specific age (generally up to 65 years old). Should the insured die within the set period or before the set age limit, the death benefit will be paid to the named beneficiary according to the settlement option selected.
Advantages for the insured offer lower initial premiums and is designed to provide affordable insurance for those with a lower annual income flow. It can be purchased with a single premium or in a series of premium payments set to the insured’s preference of monthly, semi, or annually.