Life Insurance and the Law. A layman's introduction.
Trying to get life insurance for your family should be a priority. You may ask, what is life insurance? Life insurance is a policy that will pay benefits to the beneficiary upon the death of the insured person. It’s usually purchased by an individual or a business, and it typically pays off all or part of their outstanding debts and/or provides for their dependents if they die. There are some downsides to life insurance though, such as its high cost over time; especially in today's economy where even policies with low cash amount or large death benefit have increased premiums. The actual cost of many policies increase more than the inflation rate each year. The problem with this is that many people have trouble affording life insurance. Luckily there are a variety of options available, and some are less expensive than others.
It is important to know what the benefits of life insurance actually are. There are four main types of benefits that you will receive if this policy is paid out to your loved ones: death benefit, cash value, dividends and tax savings.
A death benefit is exactly what it sounds like; a monetary amount given to the beneficiary upon the death of the insured person. It’s meant to cover funeral costs, much like a traditional life insurance policy.
is exactly what it sounds like; a monetary amount given to the beneficiary upon the death of the insured person. It’s meant to cover funeral costs, much like a traditional life insurance policy. Dividends are added back into your account and paid at regular intervals over time if you stay with your current company and they do not terminate your coverage. If you change companies, these dividends can be lost if you do not heed that warning sign and change plans before it is too late!
are added back into your account and paid at regular intervals over time if you stay with your current company and they do not terminate your coverage. If you change companies, these dividends can be lost if you do not heed that warning sign and change plans before it is too late! Cash value is a portion of your premium that the insurance company uses to amass interest. In return, they usually offer some sort of investment or savings plan to help the policy holder build back up their funds.
is a portion of your premium that the insurance company uses to amass interest. In return, they usually offer some sort of investment or savings plan to help the policy holder build back up their funds. Tax savings are essentially all of the expenses used to pay for life insurance that are tax deductible.
The costs of life insurance can vary depending on the type of policy you use and the amount of coverage you receive. There are different types of policies, and each one is more or less expensive than the other. Term life is the most traditional policy because it offers lower premiums than other policies. Whole life policies last your entire lifetime and are thus more expensive than term, due to their long-term nature. Universal insurance tends to fall somewhere in between both term and whole life in terms of price, however this can change depending on the type of universal or whole-life policy you have purchased, as well as what kind of coverage you receive.
The first step to finding the right life insurance is to look at your current financials. Your annual income, savings, assets and liabilities should be taken into account. As long as you can afford the cost of life insurance and you’ll still have enough money for your daily bills after the policy is paid out, then it’s all good! The amount of coverage you need will depend on what you have in savings (think retirement accounts) or what your debt load looks like. If you are close to retirement, and have a good amount of savings or assets, you may want to wait until your retirement funds are in place before looking into life insurance.
When looking for life insurance, it’s important to evaluate all of the options you have available. Here are some questions you should ask yourself before purchasing a life insurance:
Do I know what kinds of profits each policy offers? Life insurance is not for everyone. It’s important that if you go this route, that you understand what kind of benefits the policy will provide as well as its cash-out features so that it makes financial sense for you and your family.
Do I understand what the policy will cover?
How much will it cost me to purchase this policy? (Start by looking at your savings and assets, and then estimate your monthly income with the type of job you have.) If you don’t want to figure it out yourself, there’s an easy-to-use calculator at State Farm that can help you. They even offer a wealth planner for those who are considering a whole-life or universal life policy. This planner asks several simple questions about yourself, and then gives you an idea of what your future may look like when you retire. This is just one of many ways to help put things into perspective when making big decisions like these.
No matter what type of policy you choose, it’s important to have an idea about how much coverage you need. This way, you can find a policy that covers your monetary goals while still remaining within your budget. Life insurance is no joke, so make sure that you research and understand the policies that your looking into before making any decisions or purchasing a plan. Overall, life insurance is an excellent resource for many people with families and/or dependents. It’s also a good way to help protect yourself financially should something happen and prevent financial ruin in the process. While it may seem expensive at first glance, it may end up saving your family from far bigger costs in the future.
What do you think? Are you sold on life insurance? What benefits do you think it provides? Let us know in the comments below. We’d love to hear from you!
Up Next: 6 Ways To Grow Your Savings Without Paying Taxes On It
Editor’s Note: This post was originally published on January 4, 2017, and has been updated for quality and relevancy.
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About the Author Amber Neben Amber Neben is a YouTube Partner Manager at Google.
Conclusion
If you are looking to save for your future, or would like to provide for your family after you are gone, life insurance is a great option! While it can often seem pricey with all of the premiums and taxes that come along with it, the financial benefits it provides are worth it in the long run. After taking a look at what’s available and evaluating your current financial situation, it’s safe to say that life insurance shouldn’t be forgotten even with all of today’s new opportunities and services. Life insurance can be a great tool to help people protect themselves financially in case something unexpected happens.