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If you’re like many other people, you don’t like to think about your family’s life if you were to have an untimely death. However, there are many financial experts who consider life insurance policies the cornerstone of smart financial planning. Life insurance policies can be an important tool for the following reasons:
1. Life Insurance Replaces Income for Dependents
If you have people that depend on your income, life insurance can replace your income after your death. Life insurance is particularly important in the cases of parents with young children. But life insurance policies can also be useful for anyone who cares for other financially. In fact, your dependents may include domestic partners, spouses, parents, siblings or adult children. Life insurance is crucial, especially useful if the benefits from government- or employer-sponsored in case of your death.
2. Life Insurance Pays Final Expenses
Funeral expenses can quickly accrue for your family after your death. Your life insurance policy may able to help pay for funeral and burial costs, probate and other estate administration costs, debts, and medical expenses not covered by health insurance.
3. Life Insurance Creates an Inheritance for your Heirs
Your life insurance policy can create an inheritance for your heirs by naming them beneficiaries on the policy.
4. Life Insurance Covers Federal and State “Death” Taxes
Life insurance benefits can pay estate taxes so that your heirs will not have to liquidate other assets or take a smaller inheritance. Some states are offsetting federal decreases with increases in their state-level “death” taxes, making it vital to plan for taxation of your estate.
5. Life Insurance Makes Significant Charitable Contributions
With your life insurance policy, you can make a charity the beneficiary. By doing so, you can make a much larger contribution than if you donated the cash equivalent of the policy’s premiums.
6. Life Insurance Creates a Source of Savings
Some types of life insurance create a cash value that you can borrow against or withdraw. Since most people make paying their life insurance policy premiums a high priority, buying a cash-value policy can create a kind of forced savings plan. The interest credited is tax-deferred and may be tax-exempt if the money is paid as a death claim.
When it comes to life insurance, there are two major types — term and whole life. Whole life insurance, referred to permanent life insurance, encompasses several subcategories including traditional whole life, universal life, variable life and variable universal life insurance.
Life insurance products for groups are different from life insurance sold to individuals. The information below focuses on life insurance sold to individuals.
Term life insurance is the simplest and most common form of life insurance. Term life insurance pays only if death occurs during the term of the policy, which is usually from one to 30 years. Most term policies have no other benefit provisions.
There are two basic types of term life insurance policies—level term and decreasing term.
• Level Term Life Insurance – This means that the death benefit stays the same throughout the duration of the policy.
• Decreasing Term Life Insurance – This is where the death benefit drops, usually in one-year increments, over the course of the policy’s term.
Whole life or permanent insurance pays a death benefit whenever you die— even if you live to 100. There are three major types of whole life or permanent life insurance; traditional whole life, universal life and variable universal life. Each type of whole life insurance has variations.
Traditional Whole Life - With traditional whole life insurance, both the death benefit and the premium stay the same level throughout the life of the policy. The cost per $1,000 of benefit increases as the insured person ages, and it obviously gets very high when you reach 80 and beyond.
The insurance company could charge a premium that increases each year, but that would make it very hard for most people to afford life insurance at advanced ages. In the early years of the policy, insurance companies keep the premium level higher than what’s needed to pay claims. The company then invests that money and uses it to help pay the cost of life insurance for older people.
By law, when these “overpayments” reach a certain amount, they must be available to the policy owner as a cash value if he or she decides not to continue with the original plan. The cash value is an alternative under the policy, not an additional benefit.
Variable Universal Life Insurance – Simply put, variable life insurance is a permanent life insurance policy that includes investment. With these, the cash value of your account is invested in sub-accounts available within the policy. This sub-account acts like a mutual fund. Variable universal life insurance allows ultimate flexibility but premiums can vary widely from month to month.
Universal Life Insurance – In these policies, anything you pay in premiums over the current cost of the insurance (COI) is credited to the cash value of the policy as cash. COI generally includes monthly charges for administration in addition to costs based on your age, rating class and risk level. With these, premiums can be much lower during the life of the policy than with equivalent whole life policies.
To set up your life insurance policy, trust Paul Diaz. Get your free quote today by calling us toll free at 1-877-734-4467.