Life insurance is a valuable asset in the world of personal finance. Due to the perceived complexity of it, some choose to put little thought into it or avoid it all together. This can result in a missed opportunity. Life insurance can be beneficial for a variety of reasons. Here are five things to know about it.
1. The Background
A life Insurance policy is a contract created by an insurance company that insures a certain amount to your beneficiaries after your death. Once you implement the policy, you will make premium payments that will result in a lump sum-payment – a death benefit – that is given to beneficiaries after your death.
2. Who can life insurance benefit?
If you’re in charge of taking care of someone then you should consider life insurance. If you have a spouse or dependent children, life insurance will most likely be good option for you. Life insurance can also be necessary if you’re an ex-spouse, employee, business partner, employer, or any other aspect where someone may be depending on you. If you have a solid retirement and no dependents the need for life insurance is very low but it is still possible to use it as a financial tool.1
3. The four key roles in a life insurance policy
The four roles in a life insurance policy are: insurer, owner, insured, beneficiary. The insurer is the insurance company who is responsible for paying out the lump-sum. The owner pays the premium payments. The person on whom the policy is about is the insured. Beneficiaries are the ones who will receive the death benefit payout when the insured passes away.2
4. The two general varieties of life insurance – term and permanent
Term life insurance is commonly labeled as the most simple and least expensive form of life insurance. As the name states, term life is insurance is set for a certain amount of time, like 10 to 20 years. Typically, the premium amounts stay the same for the life of the term. Once the term is over, the company may offer to extend but usually at a higher rate. A common reason behind using a term life insurance policy is to replace lost income. It can help insure specific needs will be met, like paying for a child’s college. Even if it is used for this purpose, the funds will still be rewarded out in a lump-sum.
Permanent life insurance is designed to provide lifelong coverage and it has the ability to accumulate cash-value on a tax-deferred basis.3 This is the type most commonly used with long-term events in mind. There are a few different categories under the permanent life insurance umbrella: whole life, variable life and universal. Whole life insurance guarantees a certain amount of a death benefit and typically a premium that won’t increase. Whole life also allows you to earn dividends. Variable life insurance provides death benefits and values that depend on the performance of a portfolio of investments. This option puts more of the responsibility on the owner. With good investments, there is a possibility to see great returns. If the investments drop, the return has the potential to be low. Universal life insurance allows you to adjust your premium levels so you can pay more when you have more money or less when you don’t have as much. Universal policies do have the possibility of not having any cash value when very specific circumstances occur. Because of this, some choose to back their universal policy with a guarantee to ensure they will get cash value no matter the circumstance.4
5. What to expect with costs
The cost of life insurance is specific to an individual’s needs but there are a few items to expect when companies determine the amount. Insurance companies use your health and lifestyle as an indicator of your life insurance expense. If your health/lifestyle is seen as a higher risk, you will be charged more. For example, a smoker will have a higher cost than a non-smoker. Your career and activity choices may affect your rates. The area in which you live could also determine the price but your region typically doesn’t have as much of an affect on them as your age and health.5
FOR MORE INFORMATION REGARDING LIFE INSURANCE CONTACT MIRAMONTES CAPITAL.
1 “10 Things You Absolutely Need to Know About Life Insurance.” Forbes. Web.
2 “10 Things You Absolutely Need to Know About Life Insurance.” Forbes. Web.
3 “Permanent Life Insurance.” Life Happens. Web.
4 “Permanent Life Insurance.” Life Happens. Web.
5 “How Much Life Insurance Costs Based On your Needs.” Trusted Choice. Web.
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