Last Updated on March 16, 2024 by Nasir Hanif
Image from Unsplash
Having life insurance can be important, especially if you’re in a relationship with a partner or have a family member who relies on you financially. A quality life insurance plan can provide them with the money they need to make ends meet following a death.
The Importance Of Life Insurance
Normally, people don’t think about life insurance until later on in their life. It is important to do your research and consider the many benefits of having life insurance. It protects your spouse or children in the case of financial loss after a tragic death. Understanding how buying a 30-year term life insurance plan can help your family’s financial needs for years after your passing is important. Here are some of the top reasons to consider life insurance.
1. Financially Protect Your Loved Ones
Life insurance is a type of financial product that can help your family financially protect itself for years following your death. Various types of life insurance policies can be purchased, such as whole life, universal life, and term life. Each has its unique qualities to consider before you make your decision.
Term life insurance can provide you with coverage for a specific period, such as 10, 15, or 30 years. It usually expires at the end of the policy term. However, it can also be customized with optional riders that can allow you to change the policy’s terms.
Unlike other types of life insurance, whole life insurance policies can still provide you with a cash value component, which can grow in value. However, it’s important to note that loans and withdrawals can trigger income tax liability and reduce the policy’s value. It can also cause the policy to fall behind and lapse.
Interest on loans can accumulate with a whole life insurance policy. The policy can be offered as a Modified Endowment Contract for tax purposes. Surrenders or withdrawals from the policy may result in taxable events.
Unlike whole life insurance, universal life insurance doesn’t expire as long as you pay the premium. It can provide you with cash value, and it can be customized with various features. The death benefit and premium can be adjusted.
It’s important to note that the cash value must cover the monthly charges if the premium is lower than the amount selected. Additional payments may be required to maintain the policy’s coverage. Also, increases in coverage are subject to underwriting.
2. Replace Lost Income
It doesn’t matter if you are self-employed, own a small business, or have a 9-to-5 job. Your income may be important for covering all or some of your family’s bills and needs. Expenses such as food, housing, and utilities are typically part of your monthly budget. Even without your income, your surviving family will still have to cover these expenses. This can be difficult for many families.
With a life insurance death benefit, your family members can receive the money they need to pay for these expenses. You can also use a life insurance calculator to determine how much policy you need.
3. Pay Off Debts
Some debts, such as credit cards and loans, will not go away following your death. This means that your loved ones will have to use your estate or sell assets to pay for them. Life insurance can help your loved ones pay off debts that you left behind, such as a mortgage, credit card, business, and personal loans. It can also help ease other financial burdens that they may experience following your passing.
4. Cover Funeral Expenses
Paying for a proper funeral can be stressful for your family, as it can affect their emotional and financial well-being. With the death benefit from life insurance, your family can use the money they get to help pay for the funeral. The policy’s beneficiary can direct some of the money to the funeral home or use the death benefit to reimburse them.
5. Pay For Future Schooling Costs
Life insurance can help your family pay for the education and childcare expenses of your children. Even if you’re already contributing to a college savings plan, the life insurance policy’s death benefit can offer more money for these expenses.
Final Thoughts
Understanding the various types of life insurance policies and their benefits can help you develop a long-term financial strategy. Having a plan in place that will support your family financially in the event of your death can help minimize the stress and burden that your family will be going through at the time.
