Life Insurance: Who Needs it and How Does it Work?

Life Insurance is possibly the most selfless type of insurance out there. Because it pays out after the person has died, really benefits loved ones left behind. Not only does this insurance take care of burial and funeral costs, it can also be a safety net for families. Without it, you could burden those left behind with overwhelming expenses. The list of ways you can help your family with expenses after you’re gone is long, too. Life Insurance is one way you can continue to help pay the home mortgage, pay off debts, create a college fund for children/grandchildren and maintain your loved ones’ standard of living.

There are three types of Life Insurance. You’ll want to contact an Insurance Specialist at (888) 592-3326 to discuss which is best for you and how much you’ll need. Before you call, take a quick look at what your options are:

3 Types of Life Insurance

life insurance1. Term Life Insurance. This type pays out the benefit if the named insured dies within the specified term. If the named insured does not die within that time frame, there is no pay-out and none of the premiums will be returned. However, the policy is renewable and you can always amend it. This is the most affordable types of Life Insurance, but it doesn’t have a savings option like the other two.

2. Whole Life Insurance. This is a type of Permanent Life Insurance. It has no term limits and has fixed premium rates. This type of insurance protects the named insured over his/her entire lifetime as long as payments are made. The insured can even borrow or withdraw money from this policy, which is a tax-deferred fund. The downside is that it has a lower rate of return than the other two insurance types.

3. Universal Life Insurance. This is also a type of Permanent Life Insurance. It offers lifetime coverage and a cash value. However, that value fluctuates based on short-term interest rates rather than a long-term set rate. If payments exceed the cost of the premium, the money is added to an interest-earning account. The interest rate can fluctuate, but there is a guaranteed interest rate set by the insurance company that it cannot go below. Beware that if interest rates fall, premiums may go up and/or the benefit may drop below the coverage needed. Universal Life Insurance is usually paid out to the beneficiary tax-free.

How Much Life Insurance Do I Need?

You may decide you don’t need Life Insurance because your children will be grown by the time you pass and will have other funds available to them. But what about funeral costs? Also, will your spouse still depend on your earnings? Is your home paid off or is there still a mortgage? A good way to determine how much Life Insurance you need is by adding up all the expenses that will need to be paid after you’re gone.

If you have dependents, consider how many years it will be before they are financially independent, if ever. If you have a disabled child, you must not pass up Life Insurance and you should begin paying into it as early as possible. Is your spouse is a stay-at-home parent? Consider how many years it will be before he/she returns to work.

Also, think of other expenses for which you may require insurance. Remember to take into account estate and income taxes in addition to funeral costs. If your estate owes debts and taxes, Life Insurance can cover those debts. Generally speaking, those with very little, have no dependents or who are extremely affluent don’t need to buy much Life Insurance. It’s the majority of us, right in the middle, who want to leave those behind in a comfortable financial situation.

What if My Children/Beneficiaries Are Under the Age of 18 When I Die?

life insuranceYou may worry that you will leave your children prematurely. Well, you can always take legal measures to have the Life Insurance benefit be managed by an adult of your choosing. If you do not do this, a court-appointed guardian will be appointed, whose fees will be subtracted from the benefit amount. Instead, name a trusted adult beneficiary or name your child(ren) as well as an adult custodian according to your state’s regulations for Uniform Transfers to Minors Act (UTMA). You can also have a living trust in which you name the child or children as the beneficiary/beneficiaries of your Life Insurance policy.

Do I Still Need Life Insurance if I Don’t Have Children?

Even if you do not have children, someone will be burdened with the end-of-life expenses, like a funeral. If you’ve made arrangements, such as a less costly cremation, you may not need Life Insurance. However, with insurance, your own children do not need to be the beneficiaries. You’re able to list nieces and nephews or anyone you choose to leave with a bit of security. Most people who do not have dependents or a spouse usually have a bare-bones policy or none at all.

Can I Use the Benefit for Business Purposes?

Maybe you own a business that you want to thrive even after you’re gone. Consider that your legacy may need money after you pass. Is there someone you trust to take the money from a Life Insurance benefit and put it back into the business to ensure liquid funds? If so, you can name that person as your beneficiary.

Who Can Be a Beneficiary of a Life Insurance Policy?

Anyone of your choosing, even a trust or estate, can be a beneficiary of your Life Insurance policy.

Buying Life Insurance

Rates for Life Insurance vary depending on the type you buy. Also, the same product you choose will vary in price from one insurance company to the next. You never want to buy Life Insurance or any type of insurance from a less than credible source either. Avoid brokers who charge a fee and contact our trusted partner, CPS Express, instead at (888) 592-3326.

The information in this article is from various sources. This content is offered for educational purposes only and does not represent contractual agreements, nor is it intended to replace manuals or instructions provided by the manufacturer or the advice of a qualified professional. The definitions, terms and coverage in a given policy may be different than those suggested here. Such policy will be governed by the language contained therein. No warranty or appropriateness for a specific purpose is expressed or implied.

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