Life insurance is a financial investment that guarantees, upon death, the availability of death benefits to your beneficiary or loved ones to meet the objectives for which it was intended. The policy protects you and safeguards your family from financial loss or damage if a tragedy strikes.
You have a choice of either term life or permanent life insurance.
Term life insurance covers a specific time where it could be 1 to 30 years. It offers death benefits to your beneficiary by replacing your income once you die. You can use the money paid to offset family expenses such as school fees and loans.
How term life works
Once the demise of a person when the coverage is active, your beneficiaries receive the death benefits. If the person does not die during the term, there are no benefits, as the premiums are non-refundable unless the policy has a "return premium option."
End of term life insurance policy
Once the term life policy completes the desired specified, a person can either renew for another term up to a specific age or convert to a permanent life policy.
Permanent Life Insurance It lasts your whole life and offers death benefits as well as a cash value. It is the lump sum money paid to your loved ones or your beneficiary upon your demise. However, the cash value can be accessed when a person is still alive from the premium paid.
Life insurance secures the future of your loved ones. It should be part of your financial goals and investments so that it can provide a soft landing for your family in case you die. Here are some ways life insurance can push on your loved ones.
Offset funeral costs
The amount of money paid for death benefits to the family can be used to offset funeral expenses as well as medical expenses. Additionally, it can cater to caskets or urns and covers the burial ceremony or cremation. Finally, it ensures the family can give the loved one a loving send-off without breaking the bank.
Paying off debt
Life insurance is paid in a lump sum to the family or the beneficiary. You can use the money to clear student loans, business or mortgage loans, and credit card debt. When a person dies with debt, they become a liability to their loved ones. Having life insurance ensures that your family is taken care of without you being present. It also makes sure that the family is not left with any financial burden.
Inheritance
Life insurance is a positive financial step that anyone should take to leave children with an inheritance. Unlike most financial Investments that fluctuate with the market, a life insurance policy offers a fixed amount of money guaranteed to your loved ones.
Tax benefits
If you carry a mortgage or on a property that goes over to your loved ones upon your demise, they must pay tax on the property. Proceeds from the life insurance can help offset the tax and pay for any debt carried on to your beneficiaries. It is important to note that the payout from life insurance is not taxable, and your beneficiaries don't have to include the money while filing their tax returns.
Cover for Terminal/Chronic Illness
Some life insurance policies offer riders as add-ons to the main life insurance plan. The benefits allow a person to access some death benefits. For example, it covers the treatment expenses if a person is diagnosed with a terminal illness or a chronic illness. In addition, it offers relief to the family where the medical bills are catered, unlike a situation where the family would have to go back to their pocket to pay for some of the medical expenses.
Loan Collateral
The cash value of life insurance can be beneficial when a person is still alive. You can be able to take a loan against the life insurance, which is used as collateral. Accessing the funds is quick and straightforward compared to traditional loans from banks, which require a more detailed process. For example, if you need some money, you can apply for a loan using your life insurance. The amount in the policy continues to gain dividends irrespective of the loan borrowed. Additionally, the payment terms are much flexible without having fixed payment schedules.
Manage risk in retirement
Medicare in retirement does not cover both dental and optical. Both of which decline with age and require medical treatment or checkup. The funds in life insurance can cover either of the costs without causing significant financial damage to a person. The cash value that builds up over time can be used for such treatment. The cash has no limitations on the intended purpose by the policyholder.
It is a myth held by many people that life insurance is expensive, and many avoid it altogether. However, it is essential to protect your family and ease their financial burden if you pass away. So get an affordable plan and cushion your loved ones.