Most people understand the value of life insurance. In fact, about 60 percent of people in the U.S. were covered by some form of life policy in 2018. Whether you are young, old, single, or married, having adequate life insurance can provide ample protection for your family if you should pass unexpectedly. With the cost of a funeral averaging $7,200, end-of-life expenses can cause loved ones to suffer financial hardships. Fortunately, life insurance can help take the burden off of your family while leaving them a hefty lump sum to cover important bills and expenses.
Defining Life Insurance
In basic terms, life insurance is a legal contract made between an insurer and a policy holder that states that the insurer agrees to pay your chosen beneficiary a sum of money following the death of the insured person in exchange for a premium. In concept, it is similar to auto insurance. However, the main difference between the two is that auto insurance protects against the loss of a vehicle, while life insurance protects against the loss of a life. Similar to auto policies, life policies can range from basic to complex with optional add-on features.
When you take out a life insurance policy, you can name a person or organization as your beneficiary. If you choose, you can name multiple beneficiaries on your policy which can be useful if you have multiple children or other people that you would like to receive the funds. The amount of money that the beneficiaries receive is determined by the amount of coverage that you choose to purchase. One of the biggest advantages of life insurance is that your beneficiaries will receive the amount income tax-free which can save a significant amount of money.
What It Covers
Life insurance is there to help protect those who depend on your paycheck to maintain a comfortable life. If you should pass, the policies can help pay for any leftover medical bills, as well as funeral expenses. It can also be used to cover monthly bills, such as rent, mortgage, or car payments. Likewise, it can be used to pay off outstanding debt, such as credit card bills or student loans. Many family members use life insurance funds to offset childcare costs for parents who must enter the workforce. Other expenses that it funds can pay for include future child education costs and inheritance for your children.
Who Needs It
Many people make the mistake of waiting to buy life insurance until later in life, such as after the birth of a baby or after purchasing a new home. However, it is most useful when you buy it before you actually need it. You never know when an accident or illness is going to occur that can result in death. If someone is dependent on you financially, such as a child or aging parent, having some form of life policy is a must.
There are many scenarios in which a person could benefit from having life insurance. You should consider investing in it if you are married, if you have a domestic partner, or if you have a spouse and children. You should also consider investing in it if you are the primary breadwinner, you own a home, you have a business, if you are single with children, if you have student loan debt, or if you are retired. Remember that it is never too early or too late to buy a life policy. However, the sooner that you purchase it, the less expensive it will be.
Types of Life Insurance
When comparing life insurance, you will discover two main types: term and whole. Term life insurance is suitable for most people. These policies last a specific number of years and if you do not die within that time frame, the policy expires with no payout. Whole life insurance is a type of permanent insurance that usually includes a cash value account. This cash value builds over time and eventually you may have enough cash value in your account to take out a loan against the policy. This loan can be used for various large expenses, such as a college education.
Learn More From Financial Consultants
Life insurance is likely one of the most important purchases you will ever make. If a tragedy should ever occur that resulted in your death, life policies can help ensure that your loved ones have the funds available to use for funeral costs, bills, outstanding debt, and other critical expenses. It can also provide policy holders with the peace of mind that their loved ones are protected against financial ruin following their death. For more information about life insurance or how to acquire the best policy for you, contact professional financial consultants today.