Life Insurance
Life Insurance in its most basic form offers financial security to your
loved ones to settle any monetary obligations in the event of your death.
So if someone depends on you financially, chances are that you need life
insurance. To figure out if you need life insurance, think through worst-case
scenario like - if you’re the only breadwinner, and you die how
will your loved ones cope financially? Would they have the money to pay
for your final expenses like funeral costs, medical bills? Will they be
able to meet ongoing living expenses like rent, food, clothing, healthcare,
transportation, education, etc?
Losing someone is huge emotional upheaval for the near and dear ones.
These struggles need not be compounded by financial difficulties. Hence
life insurance is a must.
Life Insurance provides instant cash to your family after death. This
cash replaces your insured’s income and can help your family meet
many of its financial needs. Whether you're married, single parent, stay
at home parents, retired, a small business owner or single - life insurance
makes sure that people you care about are financially well off to meet
their daily expenses even if you're not there to take care of them.
What is a beneficiary?
When you take out life insurance, a beneficiary has to be named. A beneficiary
is the person (or a financial institution) who will receive your life
insurance proceeds in case of your death. You should name a second dependent
beneficiary, in case you outlive the first beneficiary. Pay special attention
to the wording of your beneficiary designations to ensure that the right
person receives the proceeds of your life insurance policy. Naming one
and keeping that choice up-to-date are substantial key elements that have
to be taken into account while purchasing life insurance.
Benefits of Life Insurance
Life insurance is easily one of the most important purchases you will
ever make in your life. In the face of uncertainties, the proceeds from
this effective investment tool can help pay bills, continue a family business,
finance future needs such as children's education, protect your spouse's
retirement plans and cater to many more such needs. Other than being a
reimbursement to your family in the time of the death, life insurance
has other benefits.
- Benefiting your family - In event of your death, your life insurance
policy should cover two of your family's biggest expenses - mortgage and
education.
- Using the money for yourself - An attractive option when you no longer
need coverage, you have access to additional funds by using your policy
as collateral for loan, supplement your retirement, take a vacation or
pay unexpected bills.
- Charity - Making the beneficiary of your life insurance policy someone
other than family is also an option. You can take full advantage of this
by naming a charitable organization as the beneficiary of your policy.
Upon your death, the organization will receive the lump sum of money from
you.
- Secure your business - If you own your own business, you can name the
company as a beneficiary. The proceeds can pay off debts and loans, be
invested and used at a later time, or financially secure your business.
How much life insurance do I need?
While settling on how much life insurance to buy, figure out what are
your goals in purchasing life insurance coverage. Start by evaluating
your family's needs. Gather all of your personal information; estimate
what each of your family member would need to meet current and future
financial obligations. Tally up all of the resources that your surviving
family members could draw upon to support themselves. The difference between
their needs and the resources to meet those needs forms your life insurance
need. Since most people rely on their income completely, it is advisable
to buy protection that is the equivalent of anywhere between 5 and 8 times
your annual income.
Types of Life Insurance
Choosing life insurance product for most people is simply guesswork, but
in fact it is quite a complex process that depends on a host of different
factors. The two most important level of cover are Term Life Insurance
and Whole Life Insurance.
- Term Life Insurance - Designed to meet temporary needs, Term life insurance
provides protection for a specific period of time i.e. term and generally
pays a benefit if you die only during the term. If you outlive the term,
the policy becomes null and void. Term life insurance makes sense when
you need a coverage that will disappear at a specific point in time. The
biggest advantage of term life insurance is the high life cover at fairly
low premiums.
- Whole Life Insurance - As the name suggests, whole life insurance provides
lifelong protection. As long as you pay the premiums, and no loans, withdrawals
or surrenders take place, the full amount will be paid up on the death
of the person whose life is assured. Whole life insurance accumulates
cash value over a period of time, but how much that lump sum cash value
will be depends on the type of the policy.
The most important difference between Term Insurance and Whole Life insurance
is that, term insurance provides protection against death during a specified
period and whole of life insurance provides protection against death at
any time.
Shop
It's amazing how much rates vary from company to company for the exact
type of coverage. Rates and coverage differ from state to state, shop
around on your own or talk to an independent life insurance agent to make
get a life insurance plan that's correct for you.
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