Every person has their share of financial responsibilities. There are some expenses that are mandatory. Then there are some that are optional. One of these is life insurance. It is something that many people question. They wonder if it is all that important to have.
What is Life Insurance?
Insurance Companies offer different types of life insurance. It requires a person to pay a specific amount of money each year known as premiums. In the event of the death of the now insured person, the Insurance company will pay out a lump sum of money. The named beneficiary receives the payout of the policy. It takes place once the insured has passed away.
The amount will depend on the amount of the value of the insurance policy. The beneficiary or beneficiaries can be whoever the insured person chooses.
Is It Worth it to Buy Life Insurance?
Life insurance needs to depend on the situation and circumstance of each individual. One of the best ways to determine if it is worth it is to take a look at the financial responsibilities now.
- Do you contribute financially to your family now?
- Do you have debts that someone will be responsible for after your death?
- Are there children in the family who are counting on you to pay for their education?
- Would there be enough money to pay for your funeral in the event of your death?
These are some of the important reasons that individuals buy life insurance. They want to be sure their loved ones will not suffer financially. The insurance money can help them with these issues outlined.
There are those who are not a significant contributor to the family financially. They still may want to consider life insurance. Quite often one parent is the stay-at-home caregiver for the family. As such they are not directly generating an income. However, they are making a major contribution of their time tending to the family needs. If they were to pass away the other parent may have to hire extra help. They may need someone to take on all the tasks performed by this individual. With this person having insurance it could help with these costs.
Why Would Life Insurance Be a Good Investment?
The answer all depends on the perception of investment. The answer is probably yes. If one is looking at it as investing in their beneficiary’s financial security. However, if considering it as a financial investment, the answer is it depends.
There are different types of life insurance. The one chosen helps to determine if it fits into being a good investment.
Different Types of Life Insurance
There are a few different versions of life insurance. It is important to understand the differences between them. Then an informed decision is possible.
This form of life insurance has a time span to it. It may be a five-year policy. Or it could be ten or twenty years, for example. It will only provide a payout in the event of death during its term. It has no cash value to it with respect to it being an investment.
It is the type of life insurance that has some investment options to it. Part of the premium paid goes to life insurance coverage. Another part is used as an investment. There is a guarantee on the investment portion.
The guarantee is to give a rate of return. Some of the premium costs are maybe payable from the investment portion. Or, the insured can borrow against the policy or withdraw the money.
Another option for buying life insurance with investment opportunities. Very similar to Universal Life insurance. The insured and their family has coverage with this type of policy. It also creates some tax benefits. There is the option to withdraw the cash value. The Insurance company determines where to invest.
Is Life Insurance a Good Retirement Plan?
Another way to view the benefits of life insurance is how it can be of value in the retirement years. Of course, there would be a payout to the named beneficiary in the case of death. Choosing one of the investment type life insurance policies could serve some retirement purposes.
Some like to apply the cash value of debt. It helps to make the retirement years less financially stressful. There can also be some potential tax benefits to investment-type life insurance plans.
Making the Right Life Insurance Decision
The priority has to be set as to whether the life insurance is viable for investment purposes. One thing to consider is that investment life insurance policies are more expensive. In regards to the premium payments.
Money withdrawn from the investment life insurance policies could lower the amount paid out on death. However, there is always the option to be able to pay this back into the policy account.
A portion of the money may be nontaxable. Pertaining to money borrowed on the policy.
Being Life Insurance Savvy
Life insurance is often looked at casually. Some think it is just a matter of paying the premiums. Then upon their death, their beneficiaries will get a set sum of money. That is the basics of it. However, there can be much more to it. Like the investment options. However, to garner full advantage of this, means understanding it.
Any financial investment takes at least some basic knowledge. It also takes some careful planning. Life insurance used for investment purposes demands the same.
A decision has to be made whether the focus is going to be on the payout in case of death. Or, is the priority the amount of investment that will accrue over a period. Every individual has their specific circumstances. Their decision for life insurance and investment purposes has to be based on this.
A young couple with a family will have one approach, while a couple with no children will have another.