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Whether you're married with kids, or have a partner or other relatives who depend on you financially, having life insurance can be important. Life insurance provides money, or what's known as a death benefit, to your chosen beneficiary after you die. It can help give your loved ones access to money when they need it.
Understanding life insurance can help you plan for your family's long-term financial needs. Here are five reasons why life insurance is important.
1. It Can Help to Financially Protect Your Family
Life insurance is meant to help protect your family's financial future. Even if you have savings, it's unlikely that it would be enough to cover your family's expenses for several years or even decades if something happens to you unexpectedly. Typically, there are three types of life insurance to consider: term life, whole life or universal life.
Term Life Insurance
This type of life insurance offers coverage for a set period of time — generally 10, 15, 20 or 30 years. Coverage expires at the end of the term. However, most term life insurance policies also offer optional riders that could allow you to renew or convert your policy.
Whole Life Insurance
This type of life insurance doesn't expire as long as you continue to pay the premiums. It also offers a cash value component that has growth potential. You also can borrow from the cash value, but loans or withdrawals may generate an income tax liability, reduce the cash value and death benefit and cause the policy to lapse. Loans will also accrue interest.
Universal Life Insurance
This type of life insurance is similar to whole life because it also does not expire as long as you continue to pay the premium, and it also has a cash value component. With a universal life policy, you typically have the flexibility to adjust the premium and death benefit. However, there must be enough cash value in the policy to cover monthly charges if a lower premium is paid than the amount selected at issue or if a premium payment is skipped. Additional premium payments may need to be made to keep the policy in force. Increases in coverage are also subject to underwriting.
2. It Can Replace Lost Income
Whether you have a 9-to-5, are self-employed, or own a small business, your income might cover a portion or even all of your family's daily needs.
Housing, food, utilities, clothing, car maintenance and health care premiums are likely all part of your monthly budget, and even without your income, your family will still need to cover these expenses. The death benefit from a life insurance policy can help provide the funds your family may need to help cover these expenses. When considering your options, you may want to think about using a life insurance calculator to help you determine how much life you insurance you may need.
3. It Can Help Your Loved Ones Pay Off Debt
Certain types of debt don't go away when you die, which means your loved ones may have to use money from your estate or sell off other assets to cover them. This could leave less money to pay for expenses.
Life insurance can help your loved ones pay for any debt you leave behind, including credit card debt, business debt, personal and/or educational loans and mortgage debt. At a time when your loved ones are already dealing with your loss, life insurance can help ease some of the financial burdens they may experience after your passing.
4. It Can Cover Funeral Expenses
Funerals can be expensive. Dealing with this financial stress can add to the emotional stress your family might experience. Your family could use some of the death benefit from your life insurance policy to help pay for these costs. To do this, the beneficiary of the policy could direct some of the death benefit to the funeral home, or they can pay out-of-pocket and use the death benefit as a reimbursement for these expenses.
5. It Can Help to Pay for Future Education Expenses
If you have children, life insurance can help your family pay for future childcare and education expenses, especially for college. Even if you've already started contributing to a 529 college savings plan, the death benefit from a life insurance policy can provide additional money to help cover your children's education if you were to die.
Protecting Your Family's Future With Life Insurance
Understanding life insurance and how much coverage you may need can help when making long-term financial plans. Making plans to support your family's financial stability in the event that you pass could help to mitigate the stress and burden of an already difficult time. Depending on your financial goals and needs, life insurance could be an important part of this plan. For more information, consider speaking with a financial representative.