Life Insurance

MINUTE READ

Life insurance is a contract made with an insurance company that provides a lump-sum payment upon the insured’s death in exchange for premium payments. The payment will be made to the insured’s beneficiaries. It can be an essential safety net for anyone who depends on you financially. Even if you have a policy through your employer, it is still a good idea to consider your own life insurance policy.

Types of Life Insurance

There are a few types of life insurance policies, but the main two include the following:

Term Life Insurance – covers you for a limited amount of time, such as 15, 20, or 30 years. Term life insurance does not build cash value. If you die during the term of the insurance policy, then your beneficiaries will receive the payout from the policy. 

Whole Life Insurance – also known as permanent life insurance, is a policy that covers the duration of the insured person’s life, as long as premiums are paid. Whole life policies usually include a “cash value” account, which builds value over time. 

There are three main parts of a whole life insurance policy:

  1. Death benefit – it’s a tax-free lump-sum paid out by the life insurance company is you die.
  2. Beneficiary – The person or people named to receive the death benefit. Recipients can be your significant other, children, business partner, a trust, a friend, an organization, and other legal relationships.
  3. Premiums – the amount you pay for your life insurance, usually paid monthly or annually.

Who could benefit from life insurance, and how?

How life insurance can help

Best option

Breadwinner

Life insurance can help replace your lost income so your family can continue to pay for everyday expenses.

Term life insurance can cover your working years.

Stay-at-home parent

Life insurance would cover the cost of paying for services the parent does for free, such as childcare.

Term life can cover the years your kids are young.

Divorced parent

A policy could cover the support payments that a divorced parent makes.

Term life can cover the years of support payments.

Parent of a special-needs child

Life insurance can make sure the child will have financial support after a parent dies.

Permanent life insurance provides a payout no matter when you die.

Homeowners with a mortgage

A policy can cover mortgage payments, so your family doesn’t have to move.

Term life insurance can match the years of a mortgage.

Someone with co-signed debt (such as student loans or credit cards)

Life insurance could cover the cost of the debt.

Term life can be timed to end with the debt payments.

High net worth individual

Life insurance can provide funds for heirs to pay estate or inheritance taxes.

Permanent life insurance is best for those with estate tax concerns.

Someone who wants to provide an inheritance

If you don’t have a lot of wealth, life insurance can provide a small inheritance to heirs.

Permanent life insurance will pay money for the inheritance, no matter when you die.

Business owner

Life insurance can pay off business debts, help heirs to the business pay off estate taxes, or fund a buy-sell agreement that allows a business partner to buy out your share.

Term life or permanent life, depending on the issue to be solved.

Investor who has maxed out other retirement plans

Life insurance with a cash value component can provide a supplemental source of retirement savings.

Permanent life insurance, which builds cash value that you can access.

People concerned about paying for their own funerals

Small life insurance policies can pay for your funeral and final expenses.

Permanent life, such as final expense insurance.

How to Buy Life Insurance

You will want to work with a licensed life insurance agent and reputable company to purchase the life insurance policy that is right for you. A qualified agent will help you determine how much policy you should buy for your specific financial needs.