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When it comes to protecting the people who depend on you, life insurance is crucial. It’s a smart way to ensure your loved ones are taken care of in the event of death.
Granted, there are a number of considerations to take into account when trying to determine How much life insurance do you really need?. AND what type of life insurance you choose (whole or term) is specific to your personal financial situation.
Once the amount and type of life insurance is determined, you can start paying your premiums knowing that your loved ones will remain safe and protected. But how safe and secure will they really be? How does the life insurance payout work and what can the money be used for? The answers to these questions will help you decide whether the type of policy you have – or want to upgrade – is sufficient.
If you don’t have life insurance or want to increase what you already have, now is a good time to start. You can get started with a price estimate today.
Regardless of where you fall in terms of life insurance protection, however, it’s helpful to understand what an eventual policy payout can be used for.
What can you use life insurance for?
Life insurance policies can be used for several different reasons.
Many people will use a portion of their life insurance policy to cover funeral expenses. Those with spouses or children usually purchase a policy so that their loved ones can easily cover the costs of the service after they are gone.
You can also put the proceeds into a trust so that the beneficiaries don’t have access to all the funds when you pass. This can be useful if you have young children and want to make sure they are responsible with money.
Sometimes people buy life insurance to provide an inheritance for non-dependents. For example, if you are single with no children, you may want to purchase life insurance with your nieces and nephews as beneficiaries. If you have pets, you can also purchase a policy so that the friend responsible for caring for your pets has the funds to do so.
Some people will buy specific life insurance policies, such as Universal Life Insurance, to use as investments. Unfortunately, these policies often have high fees and usually won’t match the stock market. It is often better to invest in a conventional retirement account such as 401(k) or IRA. Usually, only high net worth individuals can benefit from purchasing one of these policies.
A note: while these are the cases that life insurance is typically used for, the payouts that the beneficiaries receive can be used however the recipient wishes. There are no specific restrictions or requirements to be met. The money received can be used as desired.
If you don’t have life insurance, or, by understanding what it might cover, you want to increase what you currently have, there are options to pursue. Getting a life insurance quote is a great first step.
However, while pursuing a new policy, it is also helpful to have a clearer understanding of life insurance policies in general. This will help you make sure you make the right decision when buying insurance.
What is life insurance?
Life insurance is a way to protect your family in the event that you die during your prime earning years. A suitable life insurance policy should pay out enough so that your family does not face financial hardship after your death.
Only those who provide financial support to other people should really buy life insurance. For example, if you are single with no dependents, you probably don’t need to buy a policy. However, if you are married with two children, you will likely need a substantial policy.
Life insurance policy holders pay a monthly premium. If they die while the policy is in force, the beneficiaries will receive the payout, which is tax-free.
There are two main types of life insurance: term and whole. As it sounds, term life insurance is only sold for a specific term, usually ranging from 10 to 30 years. Whole life insurance is designed to cover you throughout your life.
Lifetime premiums are usually much less expensive than whole life premiums because you are less likely to use the policy.
Most consumers do not need a whole life policy because they do not require coverage for their entire lives. For example, if you change lives while in retirement, your beneficiaries will receive any remaining investments and savings. And since you weren’t providing income through your job, you don’t have to replace that income stream when you pass.
Some employers offer free or discounted life insurance coverage as a workplace benefit, but the total amount can vary widely. If you leave the company or are fired, the policy will lapse and you will no longer have coverage. It is often wise to have your life insurance policy separate from your employer.
Thinking of increasing your current life insurance coverage? Or do you want to start fresh with a new policy? Act now and get a price estimate today.