Life insurance refers to a contract between you and an insurance provider to pay out a specified amount of money to the people you name as beneficiaries in the event of your death. As the policyholder, you will be required to pay premiums to get the coverage. Insurers invest the funds hoping to get profit before they pay out claims.
Life insurance is classified as either term or permanent. The type of policy you can choose will depend on how much money you are willing to spend and the duration of the coverage. If you opt for the former, you will be covered for a specified period, such as 10 or 30 years. The latter provides coverage for your entire life.
The policies have a cash value savings account you can withdraw if you wish to do so. As a result, it is more expensive than term life insurance. Death benefit refers to the sum of money your insurance firm promises to give to the beneficiaries you identified in your policy.
Your beneficiaries could be children, parents, or other people. You should choose the death benefit based on your beneficiaries’ future financial needs. An insurer will evaluate whether there is an insurable interest, and whether you qualify for your preferred coverage based on their underwriting guidelines. Here are the seven reasons why you should have life insurance:
It’s a Sound Financial Plan
Inadequate coverage can have severe consequences for your family. Some studies have shown that many households without life insurance tend to have immediate trouble catering to living expenses after their breadwinner’s death. Your life insurance policy will help with planning for your beneficiaries’ long-term health, giving you the peace of mind that they are financially secure.
If you believe some people will suffer financially after your death, you need to buy life insurance like you need to have personal injury insurance. Your loved ones can use the compensation from your life insurance policy to cater for expenses such as funeral costs and college fees.
It Will Safeguard Your Business
Life insurance is not only designed for you and your loved ones. Some policies will offer protection for your business. If you co-own an enterprise, your business partner can acquire your shares with ease. Your partner will sign a buy-sell agreement, and the payout will go to your beneficiaries without giving them your stake.
Some life insurance policies offer options that can help you to improve your financial position. Term insurance only provides compensation if you die during the specified period. Some plans will provide a lump sum upon maturity.
Life Insurance Protects Your Family
If your family relies on your financial support for their livelihood, you need to have life insurance. The policy will replace your income after death. This is crucial, especially if you have kids or young adults who may have a hard time trying to maintain their living standards if they don’t have access to your income.
Your loved ones also need money for expenses such as hiring someone to carry out routine household tasks such as cooking and laundry. Irrespective of the nature of your work, life insurance will be an income replacement when you are no longer there to provide.
It Can Maximize Your Retirement
If the obligations you had while purchasing a permanent life insurance policy have ended, it can still offer benefits after your retirement. Depending on how it’s structured, your coverage can provide supplemental retirement income through loans and withdrawals. Your policy can also supplement your spouse’s income.
The Cash Value Keeps Growing and Accumulating
If your cash value life insurance policy is designed appropriately, it will become more efficient. Your policy’s internal rate of return can be 5% or higher after the first few years. With features such as paid-up additions, you increase your cash value accumulation, translating into more death benefit.
Your Work Coverage May Not Be Enough
In most cases, work policies offer little coverage. Generally, your policy should be about five times your current income. However, for many employers, the maximum coverage is $50,000, which may be insufficient for many people.
Usually, many people forfeit their life insurance offered at their workplace after retirement. Although you can convert a group policy to an individual, this may mean spending more money on monthly insurance premiums.
If You Already Have Debts
If you have debts such as student loans and credit cards, you should consider buying life insurance. What will happen to your debt if you die? Your co-signer (which may be your spouse) may be liable. Some private loans will not be discharged if you pass away. Your life insurance policy can pay off the debts, so your loved ones don’t need to deal with them.
Eric Reyes is a passionate thought leader having been featured in 50 distinguished online and offline platforms. His passion and knowledge in Finance and Business made him a sought after contributor providing valuable insights to his readers. You can find him reading a book and discussing current events in his spare time.