Life insurance is a way to provide money to a beneficiary upon your death, while also building cash value that can be used in numerous ways, even to pay for expenses while you are living. One of the most common uses of life insurance is to protect your family and other people who depend upon you for financial support, in the event of your death.
Why Do You Need Life Insurance?
One of the primary purposes of life insurance is to provide a financial benefit to dependents upon the premature death of the insured. The policy pays a specified amount called a “death benefit” to the named beneficiary when the insured dies. Life insurance provides a degree of financial protection against the certainty of death and can help survivors achieve specified financial objectives.
Many people use a life insurance death benefit to:
Pay funeral expenses.
Guarantee a loan in the event of premature death.
Fund a business or partnership buyout in the event of the death of one of the business owners.
Life insurance is also used to provide money upon your death to beneficiaries so they can:
Cover family debts and provide dependency income for the family.
Pay off the mortgage.
Fund a college education.
Provide an income to replace lost income or earning potential.
Help fund retirement.
What Should You Know About Life Insurance?
There are many different types of life insurance. Some of the most common types are:
Term life insurance provides protection for a specific length of time (the “term”) and produces a death benefit that is generally free from income taxes. The policy is often renewable after the initial term without evidence of insurability. Term insurance usually costs less than permanent insurance in the short term. Furthermore, you may be able to convert term insurance to permanent insurance with the same company issuing the term policy.
Permanent life insurance does not expire, unlike term insurance. The policy pays a specific death benefit within a specified timeframe. The policy typically has a death benefit and builds cash value from which the owner can borrow or withdraw. There are four basic types of permanent life insurance:
Whole life insurance provides coverage for the entire life of the insured with savings that grow at a guaranteed rate.
Universal life insurance also includes a savings element in addition to a death benefit, but offers different types of premium structures, while earning a money market rate of interest.
Variable life insurance combines a death benefit with a savings account that you can invest in stocks, bonds, and money market mutual funds.
Survivorship life insurance covers two individuals. The death benefit is payable upon the death of the second insured person. Often used to pay estate taxes for high net-worth couples, or for leaving a legacy to an organization.
Things to Consider About Life Insurance
The older you get, the more expensive life insurance becomes.
Most life insurance policies contain an incontestability clause that precludes the insurer from alleging that the policy after it has been in effect for the stated period, is void because of misrepresentations made by the insured in the application for the insurance.
Depending on the policy, the policyholder can receive a refund of the amount of premiums paid if the policyholder outlives the policy.
In some instances, the insurance company can pay your premium, if a premium is missed and there is sufficient cash value in the policy.
In some cases, you can borrow against the cash value through policy loans and use the money at your discretion.
If you have life insurance through your work, it’s advisable to purchase your own policy. Should you lose your job, or decide to change jobs, you could lose your work-issued life insurance policy.
ABC Dennis Insurance Agency
ABC Dennis Insurance is an independent insurance agency established in 1997 that provides life insurance to individuals and businesses.
As an independent agency, we find the best coverage with the most competitive rates among multiple insurance companies. This is important because no insurance company can meet every insurance need. So, we shop multiple insurance carriers to find the coverage that best fits our customers’ every need.