Only about half of all Americans have life insurance, but it can be an essential part of a long-term financial plan. If you are financially responsible for anyone or want to leave a financial legacy behind, life insurance could be the key to those goals.
Life insurance may be worth it for you, depending on your lifestyle and financial planning needs. In this article, we’ll break down the elements to consider if you’re interested in life insurance. Then, we’ll share a few pointers on how to get started.
What Is Life Insurance?
Life insurance is a product that offers financial protection for your family and loved ones in the event of your passing. When you purchase life insurance coverage, you’re paying a life insurance company so that they will pay a set amount of money to your loved ones if something fatal were to happen to you.
That money is called a “death benefit,” and it might be the difference between financial security and financial hardship for the people you financially provide for in life.
There are many different types of life insurance, so if you’re interested in securing yourself and your loved ones financially, it’s easier than one might think to find affordable life insurance that suits you and your needs.
Start by thinking about the people who depend on you and the amount of money you need to take care of them for life. As a rule of thumb, when calculating how much life insurance you will need, multiply your yearly income by ten and base your search for quotes on a policy of that coverage amount and a desired length of time for coverage.
Life insurance is neither a will nor a savings account. Instead, it should be part of your overall financial and estate planning.
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Life Insurance Can Be Emergency Protection
Life insurance can be a vital part of looking after your loved ones. It could cover financial needs from the unexpected situations that arise in life. It could also protect your family from financial hardships from sudden tragedy.
Basically, if something were to happen to you, having life insurance could potentially make all the difference to the lives of the people you care for. It could mean the difference between them suddenly having to move, search for work, and perhaps drop out of school. Your family should be able to maintain a similar standard of living, thanks to your forethought.
Nobody expects the worst, and because of that, we often don’t prepare for it. Life insurance can be a relatively low-frills and low-stress way to prepare for your own passing by paying into the future financial security of your loved ones and your legacy over time. With life insurance, you financially prepare for the inevitable without having to think about it too much.
Life Insurance Protects Your Loved Ones
As we mentioned before, all life insurance policies have a death benefit. This amount of money is paid to your loved ones if (there’s no nice way to say this, but we have to) — you were to pass away. It is a way to take care of your family after your passing. The person, or people, that your death benefit is paid to are called beneficiaries.
Beneficiaries can be anyone you choose when you sign your life insurance policy. While most people choose a family member such as a spouse, child, or parent, your beneficiary doesn’t have to be a family member. They can be a dear friend, a business partner, or even a caretaker for your beloved pet.
If you were to pass away suddenly, the loved ones you leave behind would have to pay your funeral costs and other end-of-life expenses. As of 2021, the funeral expenses may cost nearly $8,000, which is not a small amount of money to gather quickly.
If you don’t want your family to have to worry about money in addition to grieving, a life insurance policy could be a great way to care for them even after you’re gone.
If you’re financially responsible for someone (for example, aging parents, a stay-at-home spouse, or young children), a life insurance policy could fill in the gaps for them if your income were suddenly gone. A life insurance payout could also cover things such as paying off a mortgage or childcare costs in your absence.
Life Insurance Has an Investment Component
The benefits of life insurance don’t just apply to your loved ones. Some life insurance policies have features that could benefit you financially during your life.
Permanent life insurance is a type of insurance that lasts for your entire life instead of for a set period of 10, 20, or 30 years as seen with term life policies. You and your loved ones would be covered by your policy as long as your premiums are consistently paid. Since it never expires, permanent life insurance policies can be more expensive than other types of life insurance.
However, that extra expense comes with a silver lining. Permanent life insurance policies have a cash value, which is a portion of the policy that the policyholder can access while they’re still alive. The cash value component of this type of policy grows slowly during your life and could earn a small amount of interest. Unlike other policies, you could potentially borrow from it or even take a loan from it, depending on the type of policy.
If you want to start a business, pay emergency expenses, or have any other situation that requires a sudden infusion of cash, the cash value of a permanent life insurance policy could make the cost of a policy more than worth it.
How Does Life Insurance Work?
Nobody likes to talk about dying, and we won’t talk about it too much here. However, life insurance is worth it if you have any dependents, including a spouse, children, elderly parents, or even a beloved pet.
If anything were to happen to you, the people who depend on you financially will still need to be taken care of. Life insurance is a way to offer protection, especially because the life insurance death benefit is unique in that it is usually paid out tax-free.
Many of us have dealt with grief before, and there’s not a lot that can ease the pain of losing a loved one. There are many things that can potentially make it worse, though, including financial hardship. If you want to care for your loved ones even when you’re not here, a life insurance policy could potentially protect them from financial hardship caused by your absence.
Life Insurance Offers Peace of Mind
Life insurance could form an important part of a healthy financial portfolio.
This insurance type is a great way to diversify and strengthen your assets. Life insurance is just another part of the safety net that you’re creating around your life and the ones you love.
Even if you’re just starting your personal finance journey, a life insurance plan could help get you going. You don’t have to have it all figured out to benefit from a life insurance policy.
Getting a term life insurance policy, which is only good for a set amount of time, is an excellent way to start investing in what happens next and set a habit of thinking of the future financially. There are a lot of ways to approach life insurance to ensure that you are getting a policy that meets your needs at the best level of savings for you.
Ultimately, life insurance is an adult financial decision, and there are just as many ways to carry life insurance as there are ways to be a grown-up. Reading blogs like this one and reviewing some life insurance 101 guides are good ways to start getting the basics of what you need to know.
Life Insurance Can Have a Charitable Impact
Life insurance can still be a fantastic way to leave a beautiful legacy behind if you don’t name a beneficiary. You can designate a charity as the beneficiary of your life insurance policy, essentially making a large donation to an organization you believe in after you’re gone. Charities always need finances, and helping your favorite organization with their mission is definitely a beautiful legacy.
This may not be the right option for everybody, but if you’re concerned with the size and shape of the mark you’re making on the world, this is a way to ensure you leave behind a lot of kindness. If you name a charity as the beneficiary of your life insurance, they’ll receive your death benefit in the form of a large donation in your name.
The Bottom Line
If anyone depends on you financially, life insurance can be a good idea. It could protect your family from the financial hardships you work hard to prevent, even if you’re no longer here to do that.
Life insurance is a key product in a healthy financial portfolio. There are a lot of ways to use life insurance to meet your financial needs and secure the financial future of the people you love.
If you’re in the market for life insurance or just want to learn more about your options, check out our online platform. Instantly compare quotes from top carriers and choose the right plan for your needs. Browse on your own, or chat with a Guaranteed Rate Insurance agent for help reviewing all of your options to find a great fit for your situation. Our searching gets you savings.*
*Savings, if any, vary based on the consumer’s profile and other factors. Contact your insurance agent for more information. Restrictions apply.
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