Today's Life Insurance: More Than Just A Death Benefit
Why Do I Need Life Insurance?
If an individual's death would lead to financial hardship for their loved ones, it is prudent to consider obtaining life insurance. This type of insurance provides a sum of cash, referred to as the death benefit, to the policyholder's beneficiaries upon their passing. The death benefit can serve as a replacement for the policyholder's income, helping their family cover expenses such as funeral costs, daily living expenses, and funding for education. Additionally, life insurance benefits are not subject to federal income tax.
It is prudent for a significant proportion of the American population to consider obtaining life insurance coverage. An important aspect of determining whether such coverage is necessary involves contemplating the worst-case scenario. Specifically, one should reflect on the financial implications for their loved ones in the event of their sudden demise. Considerations should include whether there would be adequate funds available to address final expenses such as funeral costs, medical bills, taxes, debts, and legal fees. Additionally, it is crucial to evaluate whether the family would have sufficient resources to meet ongoing living expenses such as rent or mortgage payments, food, clothing, transportation, and healthcare expenses. Furthermore, it is important to contemplate the impact on long-term financial objectives.
Without your contribution to the household, would your surviving spouse be able to save enough money to put the kids through college or retire comfortably?
The truth is, it's always a struggle when you lose someone you love. But your emotional struggles don't need to be compounded by financial difficulties. Life insurance helps make sure that the people you care about will be provided for financially, even if you're not there to care for them yourself.
To help you understand how life insurance might apply to your particular situation, we've outlined a number of different scenarios below. So whether you're young or old, married or single, have children or don't, take a moment to consider how life insurance might fit into your financial plans.
Life Insurance For All
Stages of Life
Life Insurance For All Stages of Life
You're Married
When you're married, you share everything with your significant other, including your financial obligations. Many people mistakenly believe that they don't need to think about life insurance until they have children. Not true. What if one of you were to die tomorrow? Even with the surviving spouse's income, would that person be able to pay off debts like credit-card balances and car loans, let alone cover the monthly rent and utility bills.
If you're planning to have children, you'll want to buy life insurance right away and not wait until the mom-to-be is pregnant. Some companies won't issue a policy to a woman during her pregnancy. Since health complications sometimes arise, they'll want to wait until after the baby is born to issue the policy. Buying insurance before a baby is on the way helps avoid this potential problem.
You're Married With Kids
Most families depend on two incomes to make ends meet. If you died suddenly, could your family maintain their standard of living on your spouse's income alone? Probably not. Life insurance makes sure that your plans for the future don't die when you do.
You're A Single Parent
As a single parent, you're the caregiver, breadwinner, cook, chauffeur, and so much more. Yet nearly four in ten single parents have no life insurance whatsoever, and many with coverage say they need more than they have. With so much responsibility resting on your shoulders, you need to make doubly sure that you have enough life insurance to safeguard your children's financial future.
You're A Stay-At-Home Parent
Just because you don't earn a salary doesn't mean you don't make a financial contribution to your family. Childcare, transportation, cleaning, cooking and other household activities are all important tasks, the replacement value of which is often severely underestimated.
Surveys have estimated the value of these services at over $40,000 per year. Could your spouse afford to pay someone for these services? With life insurance, your family can afford to make the choice that best preserves their quality of life.
You Have Grown Children
As the years go by, you may feel your need for life insurance has passed. But just because the kids are through college and the mortgage is paid off doesn't necessarily mean that Social Security and your savings will take care of whatever lies ahead. If you died today, your spouse will still be faced with daily living expenses.
What if your spouse outlives you by 10, or even 30 years, which is certainly possible today. Would your financial plan, without life insurance, enable your spouse to maintain the lifestyle you worked so hard to achieve? And would you be able to pass on something to your children or grandchildren?
You're Retired
Did you know that depending on the size of your estate, your heirs could be hit with a large estate tax payment after you die (45% of your estate). The proceeds of a life insurance policy are payable immediately, allowing heirs to take care of estate taxes, funeral costs, and other debts without having to hastily liquidate other assets, often at a fraction of their true value.
And life insurance proceeds are generally income tax free and can be arranged to avoid probate. Additionally, if your insurance program is properly structured, the proceeds from your life insurance policy won't add to your estate tax liability.
You're A Small Business Owner
Besides taking care of your family, life insurance can also protect your business. What would happen to your business if you, one of your fellow owners, or perhaps a key employee, died tomorrow? Life insurance can help in a number of ways.
For instance, a life insurance policy can be structured to fund a "buy-sell" agreement. This would ensure that the remaining business owners have the funds to buy the company interests of a deceased owner at a previously agreed upon price. That way, the owners get the business and the family gets the money. To protect a business in case of the death of a key employee, "key person insurance," payable to the company, provides the owners with the financial flexibility needed to either hire a replacement or work out an alternative arrangement.
You're Single
Most single people don't need life insurance because no one depends on them financially. But there are exceptions. For instance, some single people provide financial support for aging parents or siblings. Others may be carrying significant debt that they wouldn't want to pass on to family members who survive them. Insurability is another reason to consider life insurance when you're single.
If you’re young, healthy and have a good family health history, your insurability is at its peak and you’ll be rewarded with the best rates on life insurance. If you anticipate a need for life insurance down the road (e.g., you’re the marrying type) and you can fit the premiums into your budget, it might make sense to lock in coverage while you're young and single. Doing so can eliminate the worry of having to qualify for coverage when you’re older and maybe not as healthy as you once were.
Types of Life Insurance With Living Benefits
TERM INSURANCE
The low initial premiums make term insurance a practical alternative to permanent coverage, however, term premiums will eventually increase. At some point, if you continue to carry your term coverage, the annual premiums will likely exceed the level premiums that could have been had with a permanent policy and you will not have had the benefit of building any cash values. Term insurance often offers the opportunity to convert to permanent life insurance policy prior to the end of the term without having to provide evidence of insurability. Term insurance may be appropriate for young families with low cash flow and high protection needs, for consumers whose protection needs are temporary, or to supplement permanent life insurance.
INDEXED UNIVERSAL LIFE (IUL)
Indexed Universal Life is considered a flexible type of life insurance because it provides both premium and death benefit flexibility. It allows the owner to adjust the premiums according to their financial ability. IUL's offer the option of having your cash value accumulate at an interest rate that is based on the changes of a major stock market index. Another benefit of the IUL is that any gains earned on your cash value are locked in, and you are protected against any loss due to market downturn.
To use the IUL for Retirement Planning, Estate Planning, Asset Preservation, and/or Tax Protection, contact the insurance professionals at J. Nunes Financial today!
WHOLE LIFE
Whole Life insurance offers guaranteed premiums that will not increase or decrease, a guaranteed death benefit plus the guarantee of building cash value within your life insurance policy.
Whole life insurance is what is known as a "participating policy" which means your policy may share in the issuing company's profits which are returned in the form of a dividend payment. Dividends payments are generally declared annually by the company's board of directors and are paid to the policy owner on the policy's anniversary date and payments can be received in cash or used to purchase additional insurance protection or reduce future premium payments.