It’s not a topic anyone particularly enjoys thinking about, but life insurance can be a crucial pillar of financial protection for those who mean the most to you. It helps ensure your loved ones are better able to meet their future expenses — no matter what should happen to you.
In return for your policy premium payments, the insurer promises to pay a predetermined benefit upon your passing. Your beneficiary can use the money toward whatever financial needs they may have at that time — or in the future. Depending on the provisions of your policy, your beneficiary may receive their benefit as a single lump-sum payment, a series of installment payments or by some other means. Here are some things the payout from a life insurance policy could be applied toward:
· Paying off the mortgage on a family home.
· Sending your children or grandchildren to college.
· Supporting a favorite charitable cause.
· Paying estate taxes.
· Covering funeral expenses.
· Helping your spouse pay everyday bills.
· Providing for long term care.
· Paying off student, credit card or other debt.
· Protecting a business.
· Supplementing retirement income.
But you have a number of decisions to make before you purchase a policy. First, you’ll have to choose between the two basic types of life insurance: term life and permanent life.
Term life insurance provides protection for a predetermined period of time: That could be 10, 20 or 30 years, for example. If the loss occurs within the period you’re covered for, your designated beneficiaries receive the benefit. If not, no benefit is paid out. You might be interested in this type of policy for income replacement prior to retirement or to provide care for your children until they become financially self-sufficient.
And you also have two options when it comes to permanent insurance: whole life or universal life insurance — with either able to provide lifetime coverage. Permanent life generally costs significantly more than term life policies, but it also accumulates cash value that you may even be able to borrow against should the need arise.
Whole life insurance coverage is more predictable as the premiums, rates of return and amount of benefit are guaranteed and fixed. These policies can be useful to help provide for longer term needs such as ongoing care for an adult child. Universal life insurance, on the other hand, can offer an adjustable death benefit as well as premiums, within certain parameters. Cash value growth is dependent on the interest rate climate, so it’s important to consider that potential impact when looking at this type of coverage. Finally, look into fees, no matter what type of policy you select.
Life insurance can be an important foundation of financial protection for your family. And while it may seem complicated, it doesn’t have to be. Your financial professional can explain the options available and help you determine which type of insurance best meets your needs and budget.