Why You Need life Insurance
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Reasons you may need Life Insurance:
PEACE OF MIND:
Life insurance offers peace of mind, ensuring your loved ones are financially protected even after you’re gone. It allows you to live life to the fullest, knowing you’ve secured your family’s future.
FINANCIAL SECURITY FOR LOVED ONES:
Life insurance provides a financial safety net for your loved ones, covering essential expenses such as mortgage payments, outstanding debts, education, and everyday living expenses. It also replaces the income of the primary breadwinner, ensuring the family’s standard of living is maintained.
COVERING FUNERAL AND FINAL EXPENSES:
Funeral and burial costs can be substantial, and life insurance can help cover these expenses, so your family doesn’t have to worry about them during a difficult time.
SUPPLEMENTING RETIREMENT SAVINGS:
Permanent life insurance policies, such as whole life or universal life insurance, can accumulate cash value over time. This cash value can be accessed during your lifetime to supplement retirement income or cover unexpected expenses.
Types of Life Insurance:
Term Life Insurance:
Term life insurance offers affordable, temporary coverage for those needing protection for a specific period, offering a straightforward way to safeguard their loved ones’ financial security in the event of their death.
It’s essential to choose a term length and coverage amount that aligns with your financial needs and future obligations.
Here Are the Basics of a Term Life Policy:
Most affordable:
Term Life insurance is often more affordable than permanent life insurance options like whole or universal life because it provides coverage for a specific period without the added costs of cash value accumulation and investment features. This policy is a popular choice for individuals looking for a basic coverage.
Temporary Coverage:
Unlike permanent life insurance policies, such as whole life or universal life, term life insurance offers temporary coverage for a specific period. Terms usually last from 10 to 30 years. Once the term ends, the coverage expires, and you no longer have insurance protection unless you renew the policy or purchase a new one.
Option To Convert or Renew:
Some term life insurance policies offer the option to renew the coverage at the end of the term, typically at higher premiums. Additionally, many term policies include a convertibility feature, allowing you to convert the term policy into a permanent life insurance policy without undergoing a medical exam.
Tax-Free Death Benefit:
Term life insurance provides a death benefit to your beneficiaries if you pass away during the term of the policy. If you die within the coverage period, the death benefit is paid out to the designated beneficiaries tax-free.
Fixed Premiums:
Term life insurance policies typically have fixed premiums for the duration of the term. The premium amount is determined based on factors such as your age, health, coverage amount, and the length of the term.
No Cash Value:
Term life insurance policies do not accumulate cash value over time. The premiums paid go toward providing the death benefit only, and there is no investment component or savings element associated with term life insurance.
Coverage Options:
Term life insurance policies offer various coverage options, including level term (where the death benefit remains the same throughout the term), decreasing term (where the death benefit decreases over time), and increasing term (where the death benefit increases over time).
Whole Life Insurance:
Whole life insurance provides permanent coverage, cash value accumulation, and financial protection for your beneficiaries, making it a suitable option for you if you’re seeking long-term security and estate planning benefits. It’s important to carefully consider the features, costs, and benefits of whole life insurance.
Here Are the Basics of a Whole Life Policy:
Permanent Coverage:
Unlike term life insurance, which provides coverage for a specific period, whole life insurance offers permanent coverage that lasts a lifetime. If premiums are paid, the policy remains in force, providing lifelong protection and financial security for your loved ones.
Cash Value Accumulation:
One of the distinguishing features of whole life insurance is the accumulation of cash value over time. A portion of each premium payment goes toward building cash value, which grows tax-deferred at a guaranteed rate set by the insurance company. You can access the cash value through policy loans or withdrawals during their lifetime for various purposes, such as supplementing retirement income, funding education expenses, or covering emergencies.
Dividend Options:
Some whole life insurance policies are participating policies, meaning you may be eligible to receive dividends from the insurance company’s surplus earnings. Dividends can be used to enhance the policy’s cash value, reduce premiums, purchase additional coverage, or receive as cash payments.
Tax-Free Death Benefit:
Whole life insurance provides a guaranteed death benefit to your beneficiaries upon your death, regardless of when it occurs, if the policy is in force and premiums are paid. The death benefit is typically paid out tax-free and can be used to cover funeral expenses, replace lost income, pay off debts, or provide financial support to surviving family members.
Guaranteed Fixed Interest Rate:
Whole Life insurance policies include a built-in savings account that earns a fixed interest rate, offering steady growth over time for added peace of mind. They also provide a guaranteed minimum interest rate on the cash value component, ensuring steady growth regardless of market conditions. Additionally, some policies may also offer dividends, which are non-guaranteed distributions of surplus earnings from the insurance company’s participating whole life policies.
Level Death Benefit:
The death benefit of a whole life policy remains level throughout the life of the policy, meaning it does not decrease over time. This provides certainty and peace of mind to you, knowing that your beneficiaries will receive a predetermined amount upon their death.
Fixed Premiums:
Whole life insurance policies have fixed premiums that remain level throughout the life of the policy. The premium amount is determined at the time of purchase based on factors such as your age, health, coverage amount, and the insurer’s pricing structure. Premiums are typically higher than those of term life insurance due to the permanent nature of the coverage and the cash value component.
Estate Planning Tool:
Whole life insurance can serve as a valuable estate planning tool, allowing you to leave a tax-free inheritance to your beneficiaries, create a legacy, or provide liquidity to cover estate taxes and other expenses.
Term Life insurance is often more affordable than permanent life insurance options like whole or universal life because it provides coverage for a specific period without the added costs of cash value accumulation and investment features. This policy is a popular choice for individuals looking for a basic coverage.
Universal Life Insurance:
Universal Life insurance offers flexibility in premium payments, death benefit options, and cash value accumulation, ideal for lifelong coverage and potential for cash value growth. However, understanding the policy’s features, costs, and risks is crucial before purchasing.
Here Are the Basics of a Universal Life Policy:
Flexible Premiums:
Universal Life Insurance allows you to adjust your premium payments and death benefit amount over time, within certain limits.
Permanent Coverage:
With Universal Life Insurance, you enjoy permanent coverage, meaning your policy remains in force if premiums are paid, offering peace of mind and security for the future.
Cash Value Accumulation:
A portion of the premium payments goes into a cash value account, which earns interest or investment returns over time. The cash value grows tax-deferred and can be accessed by you through policy loans or withdrawals, subject to certain conditions and limitations.
Potential Dividend Payments:
With Universal Life Insurance, you may get extra payments called dividends. These can help your savings grow more or reduce what you pay for your policy.
Death Benefits:
Universal life Insurance provides a death benefit to your beneficiaries upon your passing, if premiums are paid, and the policy remains in force.
Tax Considerations:
The death benefit paid to your beneficiaries is generally income tax-free. However, withdrawals and loans from the cash value may have tax implications, especially if the policy is surrendered or lapses.
Interest Rate Fluctuations:
The interest credited to the cash value account is typically based on the insurer’s declared interest rate, which may vary over time depending on market conditions and other factors. Some universal life policies offer a minimum guaranteed interest rate.
Policy Loans and Withdrawals:
You can access the cash value of their Universal Life Policy through policy loans or withdrawals, which can be used for various purposes such as supplementing retirement income, paying for education expenses, or covering unexpected financial needs.
Flexible Death Benefit:
You have the option to adjust the death benefit amount, within policy limits, to meet your changing needs. Increasing the death benefit typically requires additional underwriting, while decreasing it may affect the policy’s cash value.
Policy Expenses and Charges:
Universal Life Insurance policies may have various fees, charges, and expenses, including cost of insurance charges, administrative fees, and surrender charges for early policy termination.
Final Expense Life Insurance:
Final expense life insurance provides a simple and affordable way to cover end-of-life expenses, providing peace of mind and a financial legacy for your loved ones.
Here Are the Basics of a Final Expense Life Policy:
Permanent Coverage:
Like traditional whole life insurance, final expense policies provide permanent coverage that lasts a lifetime, if premiums are paid. This ensures that your beneficiaries receive a death benefit upon your passing, regardless of when it occurs.
Tax-Free Death Benefits:
Life insurance proceeds are typically paid out to beneficiaries’ income tax-free. This means that the money your beneficiaries receive from the life insurance policy is not subject to federal income tax. This can be a substantial benefit because it ensures that your loved ones receive the full amount of the death benefit without any deductions for taxes.
Tax-Deferred Cash Value:
With some Final Expense policies, your savings grow over time without being taxed. This money can be used while you’re alive to help with expenses or add to your income.
Fixed Premiums:
Final expense policies typically have fixed premiums that remain level throughout the life of the policy. Premiums are determined based on factors such as your age, gender, health status, and the coverage amount selected. Premiums can be paid monthly, quarterly, semi-annually, or annually, depending on your preference.
Cash Value Accumulation:
Final expense policies may accumulate cash value over time, although the cash value component is usually minimal compared to traditional whole life policies. You can access the cash value through policy loans or withdrawals during their lifetime, providing a source of funds for emergencies or other financial needs.
Coverage For End-of-Life Expenses:
The primary purpose of final expense life insurance is to cover end-of-life expenses, such as funeral and burial costs, cremation expenses, medical bills, and outstanding debts. The death benefit can help alleviate the financial burden on surviving family members and ensure that the insured’s final wishes are carried out without financial strain.
No Medical Exam Required:
Many final expense policies do not require a medical exam for approval, making them suitable if you have difficulty obtaining traditional life insurance due to health issues or age. Instead, you are typically asked a few health-related questions on the application.
Small Death Benefit:
Final expense life insurance typically offers a smaller death benefit compared to traditional whole life insurance policies. The death benefit ranges from a few thousand dollars to around $25,000, depending on the policy’s coverage amount and the insurer’s offerings. The average cost of a funeral in Michigan is between $7,000 – $10,000.
Simplified Underwriting:
Final expense policies often feature simplified underwriting processes that require minimal medical information and fewer health questions compared to traditional life insurance policies. This makes them more accessible if you have health issues or pre-existing conditions.
Guaranteed Issue Option:
Some final expense policies offer guaranteed issue options, which means you are guaranteed approval regardless of your health status, if you meet the age requirements specified by the insurer. Guaranteed issue policies typically have higher premiums and lower death benefits compared to policies with medical underwriting.
How Much Life Insurance Do You Need?
Rule of Thumb:
Life insurance supports the people who depend on you. They are your beneficiaries. Life insurance may not prove useful if you don’t get enough coverage.
You want your family to have enough money to cover all their expenses. Get a high enough death benefit. It is the best way to ensure your beneficiaries aren’t strapped for cash if you die.
Not sure how much life insurance you need? We’ve got you covered.
The life insurance rule of thumb:
Figuring out how much life insurance you need is easy: just calculate 10 to 15 times your income. This is the best way to account for inflation and household expenses. It will ensure that your beneficiaries have enough money for the long term.
A More Precise Answer:
To figure out a more precise number, use a Life insurance calculator. It does the work for you. To be prepared, you’ll need to gather a few numbers together that may not exactly be top of mind:
- Outstanding mortgage amount
- Outstanding debts or loans (other than mortgage and children’s education loans)
- Children’s education costs
- Liquid assets (e.g., 529 College Savings Plan; other life insurance you own; current investments; future assets like social security)
Too Much or Too Little? Both are not good!
Your responsibility is to buy the right policy amount of life insurance. If you buy term life, you also need to pick the right term length. Failing on either can jeopardize your family’s financial health.
Your family needs the right coverage amount to replace your income. Without it, they may not be able to keep up with everyday expenses, plan for the future, or pay for your final expenses.
Likewise, there is such a thing as getting too much life insurance. If you’re paying for extra coverage that you don’t need, you’re not using that money efficiently. You’re missing potential earnings on investments, funding your retirement, and building savings. And by getting more coverage than you need, you might also be spending more than you can afford on premiums. If you can’t pay for your policy down the road, your policy will get canceled.
Potential Savings to Explore:
Insurance discounts can differ depending on the insurance provider you select. It is important to note that not all carriers offer the same discounts.
Flexi-Bundle™ & Save:
Flexi-Bundle™ Discount: Combine up to four insurance products and select from up to four insurance carriers.
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Please Note:
At Insurish, we provide general information on insurance products to help you grasp their different aspects. It’s important to note that this information isn’t an insurance policy and doesn’t pertain to any specific carrier’s policy. It doesn’t alter any provisions, limitations, or exclusions expressly stated in an insurance policy. Descriptions of coverages, discounts, and features are concise. For a comprehensive understanding of specific policy details, we recommend reading the applicable policy and consulting an Insurish agent. Coverages and features vary by insurer and state and may not be available in all states. Coverage for accidents or losses depends on the terms and conditions of the actual insurance policy. References to premiums, losses, deductibles, and costs are illustrative and may not apply to your circumstances. Insurish is not liable for the content of third-party sites linked from this page.