Why Should Life Insurance Be Included in Your Personal Financial Plan?
Adding life insurance policy to your personal financial plan is one of the smartest decisions you can make.
When it comes to financial planning, most financial gurus today will tell you that no plan is complete without life insurance as a core foundation. Even if the customer has no dependents, this is typically the case because the policy owner’s bills may need to be paid if he or she dies prematurely.
However, obtaining appropriate life insurance is necessary for those who have children or other dependents, and the right amount of insurance will depend on a variety of variables. Having adequate insurance as a part of your financial plan will help you to save more money.
Why You Should Add Life Insurance to Your Financial Plan
If you are young and have little children, you will most likely require a higher level of life insurance. You may also want to consider a larger coverage if you are caring for a special needs child or aging parents.
Because the cost of life insurance rises with age, now is the time to get enough coverage. If you’re in your 20s and in good health, you can usually get a substantial term life insurance coverage for a reasonable fee. If something were to happen to you, this coverage may be utilized to financially provide for your family.
What would happen to your family if you died in a vehicle accident? Unless you have life insurance, your spouse would be responsible for all of your present debts and would be unable to pay them.
Most financial advisors will tell you that you need enough insurance to pay off all of your debts and still have enough money left over to cover at least a few years’ worth of living expenses. Instead of immediately facing a financial shortage or present bills, this can allow your spouse to either return to work or even remarry at their leisure. Isn’t that an amazing financial plan for the one you love?
Types of Life Insurance Coverages
Term and permanent life insurance are the two basic types of life insurance. At least when you’re young, term life insurance provides pure death benefit coverage at a far lower cost than permanent insurance.
Your workplace may offer discounted group term life insurance, and this is often the first place you should look for the coverage you require. Just keep in mind what happens to your coverage if you leave your job.
In the scenario above, you’d likely need at least a half-million dollars in coverage to ensure that all of your bills are covered and your family has some money left over. If you want your children to attend private colleges or graduate school, that number may rise. It is critical that you discuss life insurance with your spouse so that you both understand what will happen if something were to happen to you.
What is the difference between term life and permanent life insurance in terms of premium? Permanent life insurance is more expensive than term life insurance, but it is designed to last the rest of your life.
Permanent life insurance accumulates financial worth in a savings account that you can use at any time. The money you put into the policy grows tax-deferred, and any money you take out as a policy loan is tax-free. This is why most people are asking if cash surrender value is subject to taxation.
This sort of insurance can be used to cover estate taxes and other expenses associated with settling your estate after you pass away. Permanent life insurance comes in a variety of forms, each with its own set of benefits and drawbacks.
If you own or partner in a small business, life insurance is also essential. A life insurance policy can be used to pay off any business debts, or it can be used as part of a buy-sell transaction. Each business partner will take out a life insurance policy on the other partners under this structure.
The other partners can then use the death benefit proceeds to buy out the deceased partner’s stake in the business when one of the partners dies. In most circumstances, this can ensure a speedy and easy transfer of ownership of the company.
How Does Accelerated Death Benefit Help in Your Financial Plan?
The accelerated death benefit riders (ADB) that are now available with many life insurance plans are another important issue to consider. These riders can pay out a portion or the entire death benefit of a life insurance policy while the insured is still alive.
And then the death benefit will payout upon the death of the insured, although any outstanding loans from the policy will be deducted from the death benefit that is paid. This is why life insurance is important.