When you want to ensure that your loved ones will have their financial needs met in the event of your death, a life insurance policy can meet those needs. Knowing how much life insurance you need, as well as which type, will help you plan for that event if it should occur. Planning carefully will help prepare you.
Life insurance has several benefits that are not available with other forms of investments when it comes to transferring it. Two very important benefits are that the beneficiary gets the money directly and that it is not taxable.
The beneficiary also gets the money almost immediately. This is a tremendous benefit. An estate can be tied up for a year or more before it can legally be distributed. During that time, the family will still have to pay property taxes and maintain the property. They will also have daily living expenses such as food, mortgage or rent, education, clothes, utilities, pay funeral and burial costs, medical expenses if you did not die immediately, and more.
A life insurance policy can also provide an inheritance or enlarge one. Care should be given to ensure the entire inheritance not be committed to a life insurance policy – no matter how large. The reason for this is that you have no idea when you might die. You could live long enough to outlive the beneficiaries.
You need to balance the insurance coverage with savings and investments. The more of these that you have, the less insurance coverage you need. Keep in mind that investments in the stock market and other forms will earn a much higher interest rate than life insurance.
The Need for Life Insurance
If you have people depending on your income to sustain them, life insurance is a necessity. It should be enough to meet all their needs – at least until the children get through college. The money should enable your loved ones to be able to continue their same level of lifestyle. All of your debts should be covered, including the mortgage, car payments, and more.
There are two kinds: whole life and term. If you are still young, it is better to buy term. This is because you will get a lot more coverage at a low price. This type of insurance is pure insurance without other benefits. But, for the same amount of money, you will get much more coverage.
Life insurance is bought by the term – 5, 10, 15 years. It is sold as a package by the term, which must be renewed at the end of that term. Each time you renew it, the new costs will be based on your age. Once you reach about 55 or more, it becomes too expensive for most people. However, you can switch to whole life at that time.
Whole life, which comes in several forms, has a cash value that builds up the longer you have it. It is much more expensive than term, but if necessary, you can withdraw the cash value at any time. Any cash that you withdraw subtracts from the face value of the policy and they will charge interest if you do not pay it back. This type of policy may be better if you do not have other money for savings and investments.