Many people see a life insurance policy as a luxury item---an extraneous purchase in the here and now for protection against what might, or might not, occur. However, if you are the sole, or principle, source of income for your family---with others largely dependent on your financial wherewithal---what would happen to them if you were abruptly, and without warning, removed from the scene altogether? Life insurance can make such unwelcome scenarios significantly less devastating for those who rely on your monetary support.
Is Life Insurance Necessary?
If you list yourself as the sole dependent on your income tax returns, responsible for nobody else's welfare, then you have no obvious or immediate need to purchase life insurance. Life insurance is a security matter for individuals in your life who depend on your regular paycheck.
Nevertheless, if you have substantial resources, regardless of dependents, a life insurance policy can play an important role in overall estate planning. By circumventing probate, this small measure of financial planning can benefit whomever you deem beneficiaries by providing them with instant cash settlements---without prolonged legal wrangling---at the time of your death.
Depending on your net worth, a life insurance policy could prove indispensable for paying your funeral expenses. According to the AARP, the average funeral and burial cost is more than $10,000. Life insurance can also assist with income and estate tax bills. In addition, the proper amount of coverage can help pay off your accumulated debts, such as credit card balances.
If people in your life depend on your earnings, life insurance is a necessity not a luxury. For instance, life insurance could provide a spouse and children with real security if something unexpectedly happens to you. In fact, the right kind of life insurance policy could ensure that your income stream, or something resembling it, continues in your absence. With certain policies, a considerable lump sum death benefit could be given to your dependents when they most need it.
Before purchasing a life insurance policy, ask yourself a few critical questions to determine the kind of coverage you need. Foremost, who depends on you? What are their immediate financial needs? What are their long-term financial needs? If you have young children, these monetary concerns could be substantial over many years, including food, clothing, shelter, education, health coverage, etc. If, on the other hand, your children are college-age, their subsequent needs will be considerably less as they approach self-sufficiency.
Come up with a ballpark estimate of what the individuals who rely on you will need to live immediately after your death and in the ensuing years. The website lifehappens.org can assist you in this exercise with its life insurance needs calculator. The calculator considers key particulars in your life equation such as mortgage, tuition costs, savings and social cecurity benefits. By using the calculator at Insure.com, you can simultaneously receive instant quotations from a wide range of top insurance companies.
Types of Life Insurance
Many types of life insurance exist with policy options tailored to your financial and family circumstances. For those without excess disposable income, the most economical form of life insurance is called term life. Term life insurance is protection over the term of the policy, which you choose: five, 10, 25 years, etc. Term life insurance is really the quintessential just-in-case coverage. With term life, you designate a beneficiary or beneficiaries. If, for example, you are married and name your spouse as the beneficiary, he or she would immediately be entitled to the death benefit upon your passing.
Universal life is another option. These policies are more expensive than term life insurance, but universal life maintains an ever-growing cash value. Index universal life insurance is similar but is linked to the stock market, such as the S&P 500 index. These insurance options provide death benefits to your beneficiaries, but simultaneously behave as investments. Death benefits are untaxed. Plus, if the term of the policy ends, you can cash out the growth in value, which would be subject to taxes like any other investment .
Return of premium insurance is another brand of life insurance. You can establish a beneficiary with a death benefit, but also have your accumulated premiums returned to you at the end of the policy's term.
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