Think about it, what if you were to die today? It is undeniable, but no one likes to contemplate his or her own demise. For some, death seems a very distant future event. Others are simply "too busy" to think about it. Whatever the reason, delaying this part of planning can result in expensive, unintended, even tragic consequences. Life insurance can help to reduce these consequences for your loved ones.
What Is Life Insurance and How Is It Used?
In very simple terms, a life insurance policy is when an insurance company agrees to pay your beneficiary a specific amount of money when you die. In most cases, that amount is determined when you apply for life insurance and is specified in the policy you own. Anyone can be named as a beneficiary including relatives, friends, organizations, charities, business partners, etc. You may have multiple beneficiaries.
Typically, you will have a primary and a secondary beneficiary named. If the primary beneficiary is no longer living at the time of your death, the secondary beneficiary will receive your death benefit. Death benefits are received tax-free by the beneficiary.
The amount of premium you pay for a life insurance policy depends on a number of factors such as your age, gender, health, whether you are a smoker or a non-smoker, how much insurance you are purchasing, the type of policy you are purchasing, and your lifestyle such as if you have a risky occupation or hobby.
Life insurance is a unique asset. Because of its potential high yield and its tax-favored benefits, it can be used to solve some of life's perplexing financial problems. Some of the death benefit uses for life insurance include but are not limited to:
- Income Replacement - If the primary wage earner dies, it may be difficult for those left behind to pay the mortgage, utilities, car loans, food, and other expenses. It could be very difficult to maintain the family's same standard of living without that income.
- Pay Off a Home Mortgage - Many people would like to pass the family residence to their spouse or children free of any mortgage upon their death. Often a term policy is used, which terminates when the mortgage balance is paid off.
- Create an Estate - Where time or other circumstances have kept the estate owner from accumulating sufficient assets to care for his or her loved ones, life insurance can create an instant estate for those left behind.
- Pay Death Taxes and Other Estate Settlement Costs - These costs can vary from a low of 3-4% to over 50% of the estate. Federal Estate Taxes are due nine months after a death.
- Pay Off Loans - Personal or business loans can be paid off with insurance proceeds keeping a family's future secure.
- College Fund for Children or Grandchildren - Life Insurance proceeds and provides the funds needed to complete a beneficiary's college education.
- Fund a Business Transfer - Business owners often agree to buy a deceased owner's share from his or her estate after death. Life insurance provides the ready cash to finance these transaction.
- Replace a Charitable Gift - Gifts of appreciated assets to Charitable Remainder Trusts can provide income and estate tax benefits. Life insurance can be used to replace the value of the donated assets. Proceeds from life insurance policies can be paid directly to a charity.
- Equalize an Inheritance - When the family business passes to children who are active in it, life insurance can give an equal amount to the other children.
What Is The Right Kind of Life Insurance For Me?
For the most part, life insurance fits into one of two classes: permanent life insurance and term life insurance. There are many variations within these classes. Imagine Insurance Advisors can help you sort through your options to determine what is best for you. We have provided in-depth content on permanent life insurance and term life insurance. Make sure to check out our additional information so as to understand clearly your options.
You'll also want to check out the information on life insurance considerations to help you determine the level of your need for life insurance protection from our easy check list.
It is important to reevaluate your life insurance every two to three years to ensure it is still accomplishing what you need it to do. Our situations change as we age and our insurance needs may change as well. There is really only one final question, "if you died today, would your plan be ready?" Imagine Insurance Advisors can help you ensure you have the proper plan in place to ensure that your family is taken care of.
We can help you determine how much and what type of life insurance you need. Contact us today for more information or for a quote.