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Life Insurance Basics
What is the definition of Life Insurance?
Simply put, life insurance is an agreement you make with an insurance company to provide financial protection for losses and expenses that would arise if you were to die prematurely. You pay premiums to the insurance company to keep your policy in force. In exchange, if you die while the policy is still in force, the insurance company pays death benefits to your named beneficiary(ies). In most cases, those death benefits are income-tax free.
What does life insurance cover?
The primary reason for buying life insurance is to help protect your loved ones from potentially devastating financial consequences that could arise at your death. Life insurance provides cash death benefits to the person or people you name as your beneficiaries if you die while the policy is in force. Those death benefits are usually income-tax free to the recipient and can be used for any purpose. Some common uses for life insurance proceeds include paying off debts, paying final expenses and funeral/burial costs, meeting tax obligations, making up for lost income and creating a financial legacy for loved ones.
Who Needs Life Insurance
Do I need life insurance?** Most people need some amount of life insurance coverage. For single people who don't have anyone else depending on their incomes, a minimal amount of life insurance can provide ready cash to pay for final expenses. People with spouses and/or children should consider buying life insurance to provide a financial cushion, so loved ones wouldn't need to necessarily change their standard of living if a death occurred. Life insurance also has practical applications for people with sizable estates and potential estate tax issues, as it can be used to create a source of cash to pay estate tax obligations and other expenses.
How Do I Know How Much Life Insurance I Need?
There is not a "One-size-fits-all" answer when it comes to knowing how much life insurance you need. Everyone buys life insurance coverage for different reasons. The right amount of coverage for you will depend on your current and estimated future financial situation, and on your goals for the insurance proceeds (I.E. Pay final expenses, provide estate liquidity, leave a charitable legacy, pay off debts at death, save for children's college expenses, replace your income for a period of years, etc.) talk to your insurance agent to discuss what amount of life insurance will help you meet your goals and needs.
Is life insurance necessary for young adults?
Is life insurance necessary for young adults?
Is life insurance necessary for young adults?
Young adults may not have families depending on them financially. However, they also generally haven't accumulated enough assets yet to be able to cover final expenses and funeral/burial costs. Life insurance can provide that protection and can also be used to pay off debts in the event the insured dies, so his or her parents don't have to cover those types of expenses. The cost of life insurance is also based on the insured's attained age when the policy is issued. Buying coverage at a younger age means getting more affordable coverage that can last a lifetime. Indexed Universal Life (IUL)’s also offers tax-free retirement funds and can be a good savings option for younger adults. They can also pair IUL’s with term policies with living benefits to make sure they maintain their retirement funds even if they develop a disease.
Why is life insurance for children important?
Is life insurance necessary for young adults?
Is life insurance necessary for young adults?
When you buy life insurance on a child's life, you are doing more than ensuring funds would be available to cover the child's final expenses, if he or she died prematurely. You are also helping to protect your child's future insurability. Nobody knows what lies ahead for your child's health; when he or she has permanent life insurance in place at an early age, that policy can remain in force for your child's entire lifetime, if sufficient premium payments are made - even if they later develop a health condition that makes them uninsurable.
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