Planning for Your Later Years: What is Life Insurance?
March 19, 2020
Nowadays, insurance is available for almost any iteration––for example, body part insurance, is quite popular among celebrities. More than likely, you’re familiar with the two most commonly purchased forms, car, and health insurance. It’s likely, however, that you might not be as familiar with the equally common but overlooked life insurance.
Whether as a parent, a spouse, a friend or sibling, etc., in the latter part of our lives, it’s not unlikely that more people are depending on you. Which begs the question: what might your loved ones do if something were to happen to you? Although nothing may ease the pain, a life insurance policy might at least help with financial burdens your loved ones might face.
What is life insurance & why is it important?
Life insurance pays out a lump sum of money to your beneficiaries in the case of your untimely death. While this may sound morbid, this is something for people to consider as they age. Life is full of unexpected situations and in an unfortunate case of your premature death, having life insurance can help ensure that your family, friends, etc. will not endure a financial struggle in addition to the pain of losing a loved one.
Some may argue that their probability of prematurely passing is low and thus choose not to consider life insurance. Or, perhaps, you’re in the camp of people who just don’t find it necessary to pay the premium for life insurance benefits.
While this decision is a personal choice, here are three reasons why some consider life insurance as a worthwhile financial venture:
- Financial burden: As mentioned previously, having a life insurance policy will ease the burden of their financial woes in the case of your unfortunate passing. The policy can replace your income, which is especially important if you are a parent.
- Funeral expenses: Usually, basic life insurance policies will provide at least enough money to plan a funeral at no additional cost to family or friends. On top of this, if you hold any personal debt at the time of your death, student loans, for example, it can be transferred over to the next of kin. Having a policy can help ensure whoever inherits the debt is able to pay it off. If you’re presently dealing (and struggling) with debt, check out our guide to types of debt and how to deal with them.
- Business expenses: If you are a business owner, in the event of your death, a life insurance policy will not only help take care of your family but could also help keep your business afloat during the transition of power.
Let’s talk types of life insurance
Similar to other forms of insurance, life insurance comes in different types. Deciding on the right one for you will be based on a number of factors.
Let’s break down the three main policies:
Term life insurance is the most popular policy as it is generally the least expensive and only requires you to choose the desired financial payout and the length of coverage. Typically, you can choose a term length between 10 and 30 years. The monthly premium payments stay the same during the length of the policy but will increase substantially if renewed.
Whole life insurance lasts your entire lifespan, rather than having to renew after a certain amount of years. One benefit is that your premium payments will always stay the same because the policy lasts your lifetime. Additionally, a portion of your premium payment is deposited into a high interest-bank account where it accumulates a cash value.
Universal life insurance, like whole life, lasts the entirety of your life. Notable differences between the two are that universal life policies provide more flexibility by allowing you to adjust the premium payment and death benefits throughout your life. Similarly to whole life, the policy can earn interest based on the current market and the owner can then withdraw any of the excess cash without affecting the death benefits.
Each policy has pros and cons. With this in mind, it’s a good idea to consider discussing what option could suit you and your loved ones best with an insurance agent or life insurance professional. While death and passing are uncomfortable topics, it’s always a good idea to stay prepared. And for some, this might mean investing in a life insurance that will protect your loved ones during and after your lifetime.
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