While 85% of people agree that they need life insurance, just 62% of Americans actually have some form of life insurance.
In this post, you’ll learn how life insurance can help you, how to choose the best life insurance policy for you, and the benefits of life insurance. Ready to learn more? Let’s get started.
What is Life Insurance?
Life insurance is one of the pillars of most people’s personal finance. However, despite the fact that it’s almost universally applicable, there’s still a lot of confusion and skepticism around life insurance.
This is often due to the complexity of life insurance. But with the proper information, you can understand exactly what life insurance is, and simplify the decision-making process.
Life insurance policies are contracts with insurance companies. You’ll pay premiums each month, and the insurance company will provide your family with a lump-sum payment in the event that you pass away. You’ll choose your life insurance policy based on your needs and goals. There are a number of different types of life insurance, which we’ll get into later in this post.
The Benefits of Life Insurance
As we grow older, start businesses, build families, and get married, we begin to realize that life insurance is just a part of a solid financial plan. Life insurance provides you and your loved ones with confidence for the future. When you have a life insurance policy, you won’t need to think about what would happen to your family in the event that you passed away.
Here are just a few of the benefits of life insurance:
Protection for Your Loved Ones
If your family depends on your financial support for their day-to-day life, then life insurance is crucial. That’s because it will replace your income if you pass away. You can also provide your family with enough money to cover household tasks like childcare, cooking, laundry, and cleaning.
Leaving an Inheritance
While you may not have any other assets that you can pass onto your kids, you can create your own inheritance through a life insurance policy. By naming your kids as beneficiaries, you’re setting up their financial future while providing for any future monetary needs.
Pay off Debts
In addition to living expenses, your family will need to be able to cover any outstanding debts like car loans, credit cards, and the mortgage. They’ll also need to pay for other expenses like burial and funeral costs, which can easily add up to tens of thousands of dollars.
Your loved ones will already be suffering emotionally, and life insurance will ensure that they aren’t left with any financial burdens while they deal with their grief.
Provide Peace of Mind
No one knows when they’ll pass away. It could be next week or 60 years from now. No amount of money can ever replace what you mean to your family, but one of the biggest benefits of life insurance is the protection it provides for life’s uncertainties.
Life insurance coverage provides you and your family with peace of mind. You’ll no longer need to worry about what will happen to them once you’re gone.
The Different Types of Life Insurance
There two main types of life insurance life insurance to choose from based on your needs. These are permanent life insurance and term life insurance. However, within these categories, there are a few different types to choose from.
Term Life Insurance
This can be considered to be the simplest option when it comes to life insurance. It only pays out if you pass away during the policy’s term, which is usually between one and thirty years. Most of the time, term life insurance policies don’t have any other benefit provisions.
Within the term life insurance policy, you have two choices:
This means that the amount of benefit paid out upon your death stays the same throughout the policy’s duration.
This means that the benefit decreases (usually each year) over the duration of the policy. Keep in mind that your premium will stay the same with this policy, and the policy will end once your benefit reaches zero.
One reason why a decreasing term policy can be a good idea? When you want to cover the remaining balance of your mortgage. As the amount owing on your mortgage decreases each year, so will the amount of your life insurance coverage.
You can also choose to go in the opposite direction and have your death benefit increases over time. This is a good option if you’re a young parent and you expect your coverage needs to increase.
Permanent Life Insurance
Permanent life insurance offers a number of benefits that term life insurance doesn’t cover. When it comes to life insurance over 60, this is often the way to go.
You have a few different options when it comes to permanent life insurance:
Whole Life Insurance
When you consider the benefits of life insurance, permanent whole life insurance comes out on top. This is because it keeps you covered for the rest of your life – as long as you’re paying your premiums in full and on time.
The amount you pay for your premiums is locked in and will remain the same as you get older.
Universal Life Insurance
This provides your family with a death benefit, along with a cash value component. The funds in this component can grow tax-deferred, meaning massive gains due to compounding interest.
This is more flexible than whole life insurance since policyholders can choose how much of the payout will go towards the cash value, and how much will go towards the death benefit.
Variable Life Insurance
This also offers a cash component and a death benefit. However, policyholders can take part in many different options when it comes to investing that money, like equities or stocks. That means that you can grow the funds much more compared to a whole life policy. This is also a riskier option, though.
As you can see, the benefits of life insurance are massive and far-reaching. The above options will help you decide which type of life insurance policy is best for you and your family. However, you may also want to talk to some life insurance companies directly or get some professional advice.
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