When to Consider Life Insurance
Guest post by: John Gower a writer for NerdWallet, a website dedicated to helping consumers compare CD rates, checking accounts, credit cards and more.
Deciding whether or not you should purchase life insurance can be a difficult process, especially as a younger adult. In certain situations, life insurance can be a very useful financial tool. In others, however, it may not be the best option for yourself or your family. Consider the following life situations when reviewing the benefits of a life insurance policy.
You have a family
Life insurance gives you the opportunity to protect your family from risk after your death such as debt repayments and funeral expenses.
The most obvious reason a person should invest in life insurance is so that it could replace your income to support a surviving spouse or children if you were to die prematurely. It would be ideal if you would want your family to enjoy a particular lifestyle or your kids to go to a top tier college.
You own a business
The protection that life insurance provides can also be essential if you are a business owner or an important person in someone else’s business. If death may mean financial downfall for your company, the payout from an insurance policy would be a saving grace.
You are the sole breadwinner
If you are currently the breadwinner of the family, it would of course be wise to speak with your partner or spouse about purchasing life insurance. However, depending on your specific needs and goals, certain types of policies will better fit your situation.
You have the choice to purchase a term life insurance policy, which would provide life insurance coverage for a fixed number of years (generally ranging between 10 and 30 years). Term life insurance policies pay a benefit but only during the time period that the life insurance covers. Therefore, it’s a reasonable choice if you want to have coverage for a set amount of time (i.e. until your children finish college).
Purchasing a whole life insurance policy is another option. Whole life insurance is also known as permanent life insurance, and does not expire. It also combines death benefits with a savings portion. This means that the policy owner could borrow funds or withdraw cash to help meet future needs and goals such as paying for a child’s education or financing a family business to continue.
Becoming terminally ill
Policyholders could also sell a life insurance policy if they become terminally ill, and this is especially important if they are the financial head of the household. In the case that you are in need of the cash to cover medical expenses or other expenses that could occur, you may have the option of selling your policy to a viatical settlement company for a discounted price. The settlement company would make the premium payments and in exchange collect the amount of the face value upon the event of your death. The amount of money you would receive in this case is much less than the amount that your beneficiaries would receive, but the lump sum cash payment could definitely come in handy if you have no other resources for cash. You could also accumulate cash with life insurance if given the option of allocating a portion of your premiums to a cash accumulation vehicle. This is a choice that is generally available under universal life insurance policies.
While life insurance may not be for everyone’s personal situation, it is important to consider if you are the head of the household, sole breadwinner of your home, or perhaps even the only one in your family with a successful business or lucrative estate. If there are people who depend on you financially then most likely you need life insurance and it could come in handy in the event of your passing, no matter what your situation.
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