A life policy is designed to give your beneficiaries a lump sum of money when you are gone. This money can be used for any purpose, including paying off the house, getting rid of debt, covering funeral costs, or funding a child’s education. A fairly large death benefit is available in most cases at an affordable monthly cost to look after the people you love.
Who Can Benefit from a Policy?
Most people can benefit from a life insurance policy. While you will never use the policy, the benefits from this coverage can be used to ensure the financial well-being of those you leave behind. You may want to consider a life policy if any of the following apply:
You have minor children you want to provide for. The benefits from your policy can be used to cover child care expenses (if you look after the children), education, a car when your child turns 16, medical expenses, and more.
You will leave behind debt. Will your family struggle to pay the mortgage, medical bills, or credit card debt when you’re gone?
Your family has insufficient savings. Funeral costs alone are more than $10,000 on average without considering other expenses you may be leaving behind. A life policy can be used for final expenses and any other needs of your family.
You want to cover your final expenses. Seniors in particular use life policies to ensure their final expenses will be covered without burdening their family.
How it Works
How it works is simple: as long as you keep up with premium payments, the insurance company will pay a lump-sum death benefit to your chosen beneficiaries when you die. If you choose a term policy, death benefits will only be paid when the policyholder dies within the term, such as 20 or 30 years. A whole or permanent policy can allow you to grow the death benefit and it comes with a savings component. A permanent policy gains value with time as a portion of your payments go toward investments. With both types of policies, beneficiaries receive the death benefit tax-free.
Types of Life Coverage
There are two main types of coverage to choose from: term and permanent coverage. A term policy covers you for a specific period of time such as 30 years. If you keep current with payments and pass away while the term is in force, your beneficiaries receive the benefit. This type of coverage is the most affordable and it’s most popular with younger adults, especially those with dependents.
Permanent or whole insurance never expires. As long as you make your premium payments, you will have coverage for the rest of your life. Your policy will also have a savings component. Some of the money you pay is invested and can be accessed through a loan if you need it. Permanent insurance is most popular among older adults but it can be expensive.