Who Needs Life Insurance

Anyone with financial dependents needs life insurance. Life insurance was created to protect families from financial hardship in the event that the primary earner died. Over the years, as more and more families require two incomes to meet their monthly expenses, life insurance is imperative for both earners. The death benefit, which is the amount paid upon the death of the insured, should be large enough to at least cover day-to-day expenses.

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What Catagory Do You Fall In?

Specifically, those in one of the following categories should make sure the life insurance policy they have is sufficient to cover the needs of those left behind:

A Married Person:

Even if a married couple does not have children, they more than likely have expenses such as a mortgage, credit card bills, student loans or other debt that would need to be paid. If there are children, the policyholder  may want to consider a death benefit that is high enough to cover educational  expenses.

A Single Parent:

Single parents especially need to make sure that their children will have the financial resources necessary.

A Person Responsible for a Parent or Adult Sibling:

As people are living longer, the “sandwich” generation is becoming increasingly responsible for caring for  elderly parents both emotionally and financially. A life insurance policy that  names a parent or sibling as beneficiary will help to ensure that their standard of living is not affected by the death of the caregiver.

It  may also be important for parents to take out a life insurance policy on a child. Life insurance for juveniles is very inexpensive. Yet, a standard policy can cover final expenses that may be a burden on a young family.

Who Needs Term Life Insurance?

Term life insurance is the least complicated and least expensive form of life insurance. A term policy is written for a specific length of time, which i known as the term. The term can be as few as five years or as many as 30, depending on the life insurance company that issues the policy. The amount of  the premium is based on the age, sex and health of the applicant and the length of the term and amount of the death benefit. Premium payments can be made monthly, quarterly or annually.

Because it is in expensive, term life insurance is usually best suited for young families who may not have much spare cash from month to month. Term policies can be purchased in amounts between $2,500 and $2,000,000. Depending on the life  insurance company that issues the policy, a young family should be able to find an affordable policy that will provide money to cover day-to-day financial obligations, final expenses and the payment of a mortgage.

However, term life insurance can also be appropriate for an older person in his or her fifties or sixties. For example, a person who wants to leave money for a grandchild’s college education, or who wants to make sure that the family has enough to cover inheritance or estate taxes, may consider a term policy.

Those  who feel that the money spent on term premiums is not a good choice if they  survive the term should consider a return of premium term policy. With a ROP  policy, the premium payments are returned to the policyholder at the end of the  term. The premiums for a ROP policy are higher than a standard term policy, but  having the money returned may make the increased cost worthwhile.

Finally, because term insurance becomes more expensive to renew as the policyholder gets older, he or she may want to consider converting a term policy to a permanent life policy while the term policy is still in force. Most insurance companies  today allow term policyholders to upgrade their policies in order to provide  coverage for life.

Who Needs Permanent Life Insurance?

Unlike term life insurance, permanent life insurance ends only when the policyholder surrenders the policy or the death benefit is paid to the beneficiary. Permanent insurance policies are written in a number of different ways, the most popular of which is whole life. Unlike term insurance, permanent life policies have an investment component that builds cash value over time. The  insurance company invests a portion of the premium, which can either be paid in  installments or in one lump sum amount, in financial products as directed by  the policyholder.

A permanent life policy, then, is part insurance product and part investment  product. Because it has an investment component, a whole life policy can also be used as a retirement savings vehicle. Tax-deferred growth, highly advantageous federal and state tax laws and compounded earnings all combine to create yet another way for investors to save for retirement. However, some investors may prefer instead to invest in an annuity instead, as it provides many of the same advantages.

Permanent life insurance is typically best suited for those who are older and able to make a financial commitment to an insurance policy. It is also important the investors realize that permanent insurance requires a commitment that term insurance does not. With term insurance, if the premiums are not paid, the insurance simply ends. With permanent insurance, if the premiums are not paid, the investor may lose a significant portion of his or her built up cash value. Surrender fees, or the amount that the insurance company will charge if the  policy is cancelled can also be significant.

Who Needs Life Insurance for Estate Planning?

Life insurance for estate planning is beneficial for those who either have a large estate or for those who own a business. If established correctly, the death  benefit is paid directly to the beneficiary and is not included as part of the estate. The proceeds of the policy should not be part of probate and additional taxes should not be owned.

A business owner can also purchase a policy and name his or her partner as beneficiary. This will ensure that any final bills will be covered. It may also ensure that the surviving partner will have enough cash to buy the deceased  partner’s shares.

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