Life Insurance Basics
The purpose of getting a life insurance is to restore the funds of the family when the source of income stops upon the death of a family member. Usually, a family member who has the highest income avails of this. The contract is between a “carrier” or insurance provider and the insured person or “policy holder”. When the individual dies, the insurance company pays an amount of money which is tax free. This is called “cash benefits” and is give to the persons who are named beneficiaries.
A policy is considered to be good when it doesn’t only satisfy the replacement of loss income but also provides coverage for new expenses like the funeral service, child care and taxes, not to mention future requirements of your family. This includes the children’s college tuition fees and a spouse’s retirement needs. Often, the beneficiaries can use the cash benefit in whatever manner they like, without restriction.
People who have dependents are advised to avail of life insurance, especially for families who have young children. Even if both spouses are working, the loss of one source of income will significantly put strain on the family’s finances. It is even more important for families who only have one member who brings in a formal type of income. In any case, when children are involved it is highly advisable to prepare for such scenarios where earnings need to be augmented.
When a loved one is lost, it is already considered an emotional burden on the family. It will be even more difficult to repair lives when a financial crisis happens at the same time. Having a life insurance policy helps the family of the departed to focus on recovering without being extremely burdened by financial constraints.
In choosing the right policy for you, assess how big is the amount your family will need. Non-earning care providers have an overlooked economic value so be sure to include that in your computation. Next is to check what type of policy meets your objectives. Find a company that has high financial rating and which offers a good price. You’d want the company to have full capacity to pay your beneficiaries.
Whole life insurance covers permanent protection. The cash value increases over time. For instance, one might pay $4000 yearly in premiums for the rest of that person’s life so that the beneficiaries might get $500,000.
Term life insurance is considered low-cost. The periods of coverage range between 10-30 years. Take not that “premiums” or the amount one pays, increases every year.
Cash value life insurance allows the plan owner to treat it like an investment. Taking a loan out of it is possible, however in the event of death; the beneficiaries will get a much smaller amount or sometimes none at all, depending on the agreement. This type of policy has premiums that are expensive compared to other types of life insurance policies.
The Universal life insurance makes room for much flexibility because you can change your preferences and even increase or reduce the amount your beneficiaries will get. Variable life insurance gives you the option of investing the premiums in selected companies. However, return of investment is not guaranteed.