Life insurance is a contract between an individual and a life insurer wherein the insurer agrees to pay the designated beneficiary money upon the death of that individual. The basic function of life insurance is to provide financial protection against premature death. Apart from that, life insurance can also be paid out after a set time, and that time can vary depending on your contract. While that’s the gist of it, it’s also important to keep the 4 main reasons why you should consider having life insurance in mind.
1. A Financial Back-Up
It is a sad fact that not everyone will be able to work until they reach the age of retirement. If you pass away, how will your family manage financially? Life insurance can serve as a temporary replacement for income until your surviving dependents find employment and become self-sufficient again. A life insurance policy offers different coverage options that ensure your family will be taken care of. It’s never an easy subject to think about, but it’s wise to consider having life insurance in case something unfortunate were to happen.
If you have dependents or people who rely on your income, you know how important money is. Life insurance provides the peace of mind that everything will be alright financially if anything should ever happen to you unexpectedly. That way, you can make sure you’re taking care of them and helping them out even when you’re gone.
2. Protect Your Mortgage
As stated before, there are many different subtypes of life insurance. In that regard, mortgage life insurance is one of the most common. This type of life insurance can provide your family – or really any beneficiary – a huge relief when it comes to mortgage payments. Again, every contract is unique, so talking to your insurance provider, and going over the details and possible amendments before signing anything is important.
Still, generally speaking, a mortgage life insurance aka mortgage protection insurance works by paying off your mortgage debt after you’re gone. This type of insurance usually doesn’t require a medical exam. For people suffering from a life-threatening illness, this could be a very important factor, since there may be no health questions that will be a factor in the pricing.
3. Create A Source Of Savings
When choosing life insurance, keep in mind that there are some that can create a cash value you can use – either by borrowing or withdrawing at the owner’s discretion during his or her lifetime. With life insurance, the credited interest is usually tax-deferred. A tax-deferred investment allows the interest to compound, which can create a savings account for you or your beneficiaries.
The way it works is pretty simple: you make monthly or annual premium payments to the life insurer. In return, they will pay a sum of money at a given time to your designated beneficiaries. That’s the basic form of contract that exists between insurance providers and their clients. A savings account from life insurance means you can have money for basically any emergency that comes your way. That’s why you should consider having one in order to make sure there’s always a little extra cash on the side.
As always, it’s important to look at the different options and make the best choice for you and your family. Sometimes life insurance policies can be used as tax shelters. For example, if you pass away before the maturity of a universal life insurance policy, your beneficiary receives all premiums paid up to that point and any tax-deferred interest those premiums have accrued as well as the face value of the policy. You can also use life insurance as a way to save on estate taxes and even income tax, especially if your plan is set up properly. The money you invest in a given policy will earn interest over time, and it’s important to look at all tax advantages before choosing one type of contract or another.
4. Retirement Protection
Certain insurance policies, such as term insurance, can act as a form of retirement protection. As mentioned at the beginning, it provides insurance for a specified number of years aka a term. At the end of the term, you can renew it or get a different policy. These insurance policies are popular because there aren’t many risks involved. This is because term life insurance coverage only lasts for the duration you purchase it for. In some cases, it’s possible to have the insurance company pay you out in full after the term ends if you don’t want to renew your policy or get a different one.
When it comes to retirement, this can be very useful. It’s a sad reality that for a lot of people, their pension simply won’t be enough to sustain them during their golden years. Having a little financial boost in the form of insurance can make a huge difference. As previously stated, by having life insurance, you open the door to other tax advantages such as borrowing against your policy or even getting it cashed out in full – should you need the extra money at the end of the term.
As you can see, there are plenty of reasons why it makes sense to have life insurance. Sure, buying one may not be as fun as making plans for your future home and family, but it’s important to take the time and consider the implications and possible savings made available by this type of contract. Looking at everything life can throw your way, you can see how it’s a practical investment and one that could make a world of difference for those you love.