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Life Insurance: Do You Really Need It?
Life insurance is a key element of financial planning, yet only about 60 percent of U.S. adults own a policy. Among those who do have life insurance coverage, 1 in 5 say they don’t have enough. While concern over cost is a big factor in the life insurance gap, many consumers shy away because they don’t understand how life insurance works and what type of policy to buy.
It’s true that shopping for life insurance can be confusing, but you shouldn’t let it stop you from protecting your family. If you don’t have life insurance coverage or need more coverage than you currently have, here’s what you need to know, courtesy of Babyboomers Attic.
Who Needs Life Insurance?
These groups in particular benefit from life insurance coverage:
Married people: Life insurance provides a surviving spouse with money to pay household bills, finance a funeral and pay off debts.
Parents: With kids in the picture, it’s especially important to have a financial security net. Life insurance allows families to maintain their standard of living after a wage-earning parent or primary carer passes away.
Older adults: Life insurance is a valuable tool for financing funeral costs. As with long-term health insurance to cover costs associated with long-term care at a later date, there are important reasons to plan ahead. A life insurance policy can also be sold during the policyholder’s life to supplement retirement income and pay for healthcare and long-term care expenses. Life insurance alone may be insufficient to cover long-term care, so consider pairing it with long-term care insurance.
Business owners: If you own a business, you need personal life insurance to replace your income and pay off business loans that use personal assets as collateral. Entrepreneur explains that you should also have key person insurance and a buy-sell agreement in place.
To sum it up, if a spouse, children, next of kin, or another party would be financially impacted by your death, you need life insurance.
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What Types of Life Insurance Are Available?
Don’t let confusion over life insurance terminology impede your financial security. These are the two primary types of life insurance, simplified:
Term life insurance: Term life insurance provides coverage for a predetermined number of years. The policy, along with its benefits, expires at the end of the term. Term life insurance is the least expensive type of life insurance.
Permanent life insurance: Permanent life insurance never expires as long as the premium is paid. Permanent life insurance policies accrue a cash value, which you may borrow from tax-free. Whole life, universal life and variable life are all types of permanent life insurance policies.
What Financial Benefits Does Life Insurance Provide?
The greatest reason to buy a life insurance policy is the death benefit. The death benefit is the amount your beneficiaries receive upon your death. It can be used to pay final expense costs, pay off debt, replace income, pay estate taxes, or supply heirs with an inheritance, among other options. The death benefit is the only financial benefit term life insurance provides. However, permanent life insurance policies include additional benefits through tax-deferred cash value accumulation.
If you encounter unexpected expenses, you can withdraw from your policy’s cash value or borrow against it. If the policy is no longer needed, the policy can be surrendered to the insurer for its cash value or sold to a third party for a potentially higher sum. You can also use the cash value to pay the policy’s premiums. Each option has its pros and cons, so be sure to do your research before touching a policy’s cash value.
What Is Required for Applying?
When applying for life insurance, you will most likely need to take a medical exam, which includes a blood test. This might make you squeamish, but a blood test is needed to determine the rate of your insurance according to Forbes. The trained examiner will assess your BMI, blood pressure, cholesterol and glucose levels, and if drugs, tobacco, or nicotine are present in your system. If the test results are normal and you are smoke/drug free, you will have a better chance of obtaining lower premiums. For your convenience, the test can be taken at your home or office.
Life insurance is an important financial tool for people in all stages of life. Whether you’re a small business owner, a new parent or a retiree, life insurance could add financial security and peace of mind to your life. If you’re not sure which type of life insurance policy is best for you, talk to a financial advisor for guidance.
This article is for informational purposes only. Please contact a life insurance expert before making any financial decisions.
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