Life insurance can be important for all kinds of people, no matter what stage of life you are in. Whether you are married with children, or have a partner or other relatives who are financially dependent on you, life insurance can help provide money, or what is called a death benefit, to your chosen beneficiary after your death.
Life insurance provides that money so your loved ones don’t have to worry about how they’ll pay for their expenses. It can give them peace of mind knowing that their financial future is taken care of after your death.
Life insurance isn’t just about death benefits, it’s also about helping to protect the people around us from losing their primary source of income in the event of sudden or unexpected death. Having life insurance can help provide peace of mind knowing that our families will be taken care of if something happens.
1. It can help protect your family financially
Life insurance is intended to help protect your family’s financial future. Even if you have savings, it’s unlikely to be enough to cover your family’s expenses for years or even decades if something unexpected happens to you. Generally, there are three types of life insurance: term life insurance, whole life insurance, or universal life insurance.
Term life insurance
Term life insurance is a type of life insurance that provides coverage for a set period, usually 10, 20, or 30 years. However, it may also offer optional endorsements that allow you to renew or convert your policy.
Permanent life insurance
Permanent life insurance provides coverage until you choose to cancel it and includes a cash value component that has growth potential. You can also borrow against the cash value, but loans or withdrawals may incur income tax, reduce the cash value and death benefit, and cause the policy to lapse. Loans will also earn interest. The policy may be issued in the form of a Modified Endowment Contract (MEC) for tax purposes. Any withdrawal or redemption could result in a taxable event.
Universal life insurance
Universal life insurance is similar to whole life insurance in that it does not expire as long as you continue to pay the premium, and it also has a cash value component. With a universal life policy, you usually have the flexibility to adjust the premium and the death benefit. However, there must be sufficient cash value in the policy to cover the monthly charge if a lower premium is paid than the amount selected at issue or if a premium payment is missed. Additional premiums may need to be paid to keep the policy in force. Coverage increases are also subject to underwriting.
2. It can replace lost income
When considering life insurance, remember that it can replace lost income. Whether you have a 9 to 5, are self-employed, or own a small business, your income can cover some or even all of your family’s daily needs. Housing, food, utilities, clothing, car maintenance, and health care premiums are likely part of your monthly budget, and even without your income, your family will still have to cover these expenses. The death benefit from a life insurance policy can help provide the funds your family may need to cover these expenses. When considering your options, you may want to consider using a life insurance calculator to help you determine how much life insurance you might need.
3. It can help your loved ones pay off their debts
You don’t want your loved ones to have to deal with the financial burden of your death. This is why it is important to have life insurance in place.
But what if you always pay off your debts? Some types of debt don’t disappear when you die, which means your loved ones may have to use money from your estate or sell other assets to cover them. This could leave less money to pay for expenses like college tuition and funeral costs, and could even prevent them from paying off a mortgage on a home you jointly owned.
Life insurance can help your loved ones pay off all the debt you leave behind, including credit card debt, business debt, personal and/or education loans, and mortgage debt. At a time when they are already coping with their loss, life insurance can help ease some of the financial burdens they may experience after your death.
4. It can cover funeral expenses
Funerals can be expensive. Dealing with this financial stress can add to the emotional stress your family may be feeling. Your family could use some of the death benefit from your life insurance policy to help pay for these costs. To do this, the policy beneficiary can pay a portion of the death benefit at the funeral home, or they can pay out of pocket and use the death benefit as reimbursement for those expenses.
5. It can help pay for future education expenses
If you have children, life insurance can help your family pay for future childcare and education expenses, especially for college. Even if you’ve already started contributing to a college savings plan, the death benefit from a life insurance policy can provide additional funds to help cover your children’s education if you die.