Death is inevitable. One day we all have to let this world go and leave behind all our loved ones.
When you think about death, the biggest worry in your mind is for your family and how they will manage their finances when you are gone.
Insurance companies have found an excellent solution for this big worry in the form of life insurance. Most people do not wish to discuss this topic because it involves death. However, it is essential to understand how it can benefit you and your family. In fact, many people do not realize that the policyholder doesn’t necessarily have to die for a payout.
If this information is new to you, continue reading to learn how a life insurance policy can provide you and your family financial security in the future.
What is a Life Insurance Policy?
Firstly, let’s establish what a life insurance policy is.
It is a contract between the insurance provider and the policyholder to provide a certain amount to the family in case the policyholder passes away. This amount is collected over the years annually as a premium once the policy begins.
As a return for this premium, the insurer is liable to pay life coverage to the beneficiaries (aka people you choose to receive the payout).
This total sum is paid to the family if the policyholder dies.
Types of Life Insurance
Typically, insurers offer two types of life insurance:
- Term life insurance
- Permanent life insurance
Term life insurance is a policy you buy for a specific time period. For instance, you agree to pay a premium to the insurers for the next ten years. If you pass away during this time, they will pay the beneficiaries the payout. When the policy matures, you must renew the policy, and the cost changes according to the variables in current conditions.
Once the policy matures, you will get lose your hard-earned money. The insurer pays back the premium paid. However, they are not liable to pay the death benefit or any other benefits in the policy.
On the contrary, permanent life insurance is for life. You continue to pay the premium all your life for your family to receive the benefits once you leave this world, whenever that may be.
While a term life insurance policy is considered cost-effective, a permanent life insurance policy can be expensive since it is for your whole life.
Financial Security for Your Family
Life insurance is an excellent way to ensure financial stability for your family in a time when it might be challenging to find a regular income immediately. Losing a family member who was a source of primary income in a household can be tough.
A life insurance policy helps manage this sudden financial burden. Here are some ways the payout from a life insurance policy is used.
Replace Income
Most beneficiaries are either spouses and children or parents. The payout helps them replace the regular income the policyholder was bringing to the household. People who are single parents with little children or elderly parents tend to work on their future finances.
A life insurance policy provides financial security to your loved ones through the payout and lessens your worry about the future.
Pay off Debt
It is essential to think about what you are leaving behind for your family. Many leave debt worth thousands of dollars, and their families are left alone trying to pay it off. Life insurance plays a significant role when it comes to paying off debt.
Suppose a policyholder is gone and their spouse is left with a joint mortgage or credit card debt. Now they have mouths to feed on a single income and make sure the kids are safe in a good daycare. To top it off, they must also figure out how to pay off debt.
In such a case, a life insurance policy can be significant financial security for the family solely because a wise decision was made at the right time.
Inheritance
In this economy, it is difficult to run a household, send your kids to college, maintain a certain lifestyle, pay medical bills and also ensure that you have enough assets for your children to get a sizeable inheritance once you are gone.
It is a big wish for many parents to leave something beneficial for their children to help them grow and excel in life.
Such parents think of the death benefit as an inheritance for their children. Sometimes, the payout is good enough to start a business or use as a college fund, and the policy holder’s family can easily put it to good use.
Paying Estate Taxes
When a family receives an inheritance in the form of an estate, they are liable to pay certain estate taxes. These taxes can sometimes be a burden on the family who is already in distress from losing a loved one.
The life insurance policy provides them financial security to pay these taxes without any added burden.
Charitable Contributions
Insurance agents can help you determine how to use your payout to make charitable contributions. Some people have goals for philanthropic purposes to help people even after they leave this world. They wish to help contribute to a better world.
Life insurance can also help other children or families in need find financial security. If you do not have your own family, you can still choose to help someone and create an impact in the world you have lived in all your life.
You may also divide your payout between a charity organization and your family.
The Bottom Line
Buying a life insurance policy will keep you stress-free about the future. You will know that your family has financial safety in place just in case something bad happens.
An important thing to understand is that you will not lose your money if the policy matures while you are alive.
The insurer will not pay the death benefit, but you can get your total premium back.
Hence, life insurance is a good deal, and you and your family can use the payout when you really need it in your time of distress.
