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

Life Insurance is possibly the most selfless type of insurance there is. Because it pays out after the person has died, it really is a benefit for loved ones left behind. Not only does Life Insurance take care of burial and funeral costs as well as other final expenses, it can be a safety net for families. Without it, you could burden those left behind with expenses that could be overwhelming. 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 just 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 insurance you’ll need, but before you call, take a quick look at what your options are:

Term Life Insurance is a type of insurance that 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 of all three types of Life Insurance but it doesn’t have a savings option like the other two.

Whole Life Insurance 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 of this type of insurance is that it has a lower rate of return than the other two kinds of Life Insurance.

Universal Life Insurance is also a type of Permanent Life Insurance. It offers lifetime coverage and a cash value but that value fluctuates based on short-term interest rates rather than a long-term set rate. What’s nice about this form of life insurance is that if payments exceed the cost of the premium, that money is added to an interest-earning account. While the interest rate can fluctuate, 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 tax-free to the beneficiary.

How Do I Decide How Much Life Insurance I Need, if Any?

You may decide you don’t need Life Insurance because your children will be grown by the time you pass and they 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 that needs to be paid? A good way to start is to add up all the expenses that will still need to be paid after you’re gone.

If you do 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. If 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 (and no dependents) and those 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 situation.

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

If you worry that you may leave your children prematurely, you can always take legal measures to have the Life Insurance benefit to 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.

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

Even if you have no children, someone will be burdened with the end-of-life expenses, which include a funeral. If you have made arrangements, such as a less costly cremation, you may not need Life Insurance. However, if you do buy Life 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. However, most people who have no dependents or spouse usually have a bare-bones policy or even none at all.

Can I Use the Life Insurance Benefit for Business Purposes?

Do you own a business and want it 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 Is Allowed to 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 of Life Insurance 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: (888) 592-3326.

The information in this article was obtained 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 and 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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