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:
off the mortgage on a family home.
your children or grandchildren to college.
a favorite charitable cause.
your spouse pay everyday bills.
for long term care.
off student, credit card or other debt.
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.