According to some financial advisors, life insurance is as much a basic part of smart financial management as having a savings account for emergencies. Especially if a person has a significant other or children, life insurance provides a financial safety net in case something horrible goes wrong. Without that safety net, a person’s estate and family will be left in an immediate, financial lurch without any ability to fix it right away. Even creative financial planning techniques may not be enough when the damage is done.
A life insurance policy represents insurance coverage that, if a covered person dies, will pay out an agreed-upon sum of money to a named beneficiary. In return, the policyholder pays a monthly or quarterly premium to the insurer to keep the policy active. Doing so provides a financial buffer for the beneficiary, especially for immediate, temporary income replacement. Even for wealthy families with a high net worth may need liquidity. If the assets have to go through probate or other litigation or an asset is not easily liquidated like a residence other money may be necessary. Paying mortgages, day to day living and many other expenses may arise during this often difficult time. Life insurance may help to create the immediate needed liquidity.
There are a few types we will discuss: term life insurance and permanent life insurance.
For people in their early family years with competing demands, term life insurance may be the most practical approach. Term life provides a straightforward insurance coverage for a set dollar amount while the policyholder pays a specific premium. The term period can range but typically can be up to 30 years. If, at the end, nothing occurs then the insurer keeps all the premiums paid. The policyholder then has to go and find a new policy, usually at a higher price. That said, term life works very well as a basic coverage to provide a safety net for a specified period.
Permanent life insurance lasts for as long as the policyholder is alive and pays his premiums; ergo the name “permanent,” insurer can’t end the policy. This provides life insurance well into a person’s later years when a new policy would be extremely expensive. Created early enough, having life insurance in one’s later years can be a boon to senior retirement savings for a remaining spouse, especially in hard times.
Determining how much coverage depends on your needs. It may be to replace a lost income source for a family or create liquidity as we mentioned earlier. It can be used for individual losses or business losses, both resulting in the death of an individual. A financial plan can help you determine which type and how much coverage is appropriate.
While there are many types of life insurance available, you should consult with your financial advisor to review which type is best suited for you and your needs.
*** Life Insurance policies are subject to substantial fees and charges. Guarantees are based on the claims paying ability of the issuer.
