Life is unpredictable. You can never truly know what the coming days have for you. The fact of the matter is that nothing is fully under your control. While it is true that to enjoy life is to live in the moment and grab each opportunity or face every hurdle as it comes, it is inevitable to worry about the future, especially regarding your financial health. If you focus simply on today, what about tomorrow?
The best way you can guarantee financial security is by getting life insurance. Life insurance needs vary from person to person. As defined by Investopedia, “life insurance is a contract between an insurer and a policyholder in which the insurer guarantees payment of a death benefit to named beneficiaries upon the death of the insured.”
In other words, it is a form of financial coverage or protection against various events that can greatly affect you and your family’s financial capabilities.
Some consider buying life insurance to be a gamble while others have doubts about its importance because of life’s unpredictability. But, this is the very reason that they should be insured. Life insurance is the best investment you can make for yourself and your family.
Before settling for an insurance policy, you should compare life insurance policies and find one that suits your needs the best. Ideally, having life insurance is a financial milestone that everyone should strive to acquire because as you know it, unforeseen circumstances could happen just when you least expect them.
How does Life Insurance Work?
To maximize the benefits of your life insurance, it is important to understand how life insurance works in securing your future. By doing so, you are already taking the first step in paving the way for your family’s financial stability.
The major components of the best life insurance policy are the premiums, death benefit, and the beneficiary.
An insurance premium is the amount you pay for the policy or the total cost of your insurance. Payment may depend upon your agreement and those allowed by the insurance company. They are typically monthly installments or semi-annually, but others may also require full payment before the insurance coverage starts. The amount to be paid varies depending on your circumstances. Insurance companies will look into the different aspects of your life such as your age, gender, lifestyle, and health conditions to determine the price of the premium.
A death benefit of life insurance is a payout to the named beneficiaries of the policyholder. It is usually in the form of a lump-sum payment or a continuation of monthly or annual payments. This cannot be subjected to tax. The beneficiaries are guaranteed to collect the amount stipulated in the policy so long as the premiums are satisfied by the policyholder while he or she is still alive.
Lastly, a beneficiary is a person or entity eligible to receive the death benefit. You may specify your life insurance beneficiary to be a family member, a friend, a business partner, or a legal entity like a trust or your estate, subject to insurance regulations in your state. Policyholders also have the option to name multiple beneficiaries wherein the death benefit may be distributed amongst them.
Why You Should Get Life Insurance?
Because life insurance involves you investing a great deal of your money for a certain period, or even for your lifetime, it is necessary to know the importance of getting insurance. Here are some of the reasons why you should think about purchasing life insurance:
1. Protection for Your Family
The primary purpose of life insurance is to ensure the financial security of your loved ones in the event of your demise. Generally, life insurance is designed for younger, working people with families. It is essential when you are already at a point in your life when you have a spouse and children who are yet to graduate from college. Even if you are currently single, is it still beneficial because you may still have people who are depending on you financially, such as your siblings or parents.
2. Return on Investment
Not only does life insurance secure the future of your family, but it can also be a potential investment that can fetch you good returns. After completion of the term or should death arrive upon the insured, both the money invested and the returns are safely paid back to you or your beneficiary.
3. Pay off Debts
Credit card debts and different loans from the bank can have a dramatic impact on your family’s pocket. Life insurance policies give you the option to pay off any debts that you may leave behind that would be a burden to your family.
4. Covers Funeral Expenses
Though it may sound morbid, financial experts recommend preparing for a possible death in the family because funeral expenses nowadays can be quite expensive. Life insurance comes in handy should this instance arrive because it gives you the option to cover funeral expenses. This can help minimize the stress your family may endure during such an emotionally draining period.
5. Financial Asset
Under certain circumstances, life insurance can be an asset. Whole-life policies are treated like an asset because they have a guaranteed payout. It has cash value which can provide loan options for you. In case of bankruptcy, such cash value is also safe from creditors.
6. Supplement Your Retirement
When an untimely death occurs in the family, it can leave a spouse or the head of the family struggling to meet their needs. If properly utilized, together with a comprehensive retirement income plan, life insurance can ensure that there is enough money to replace savings or income.
7. Peace of Mind
Life insurance gives you peace of mind because it provides financial stability for your loved ones. You know your family is still going to be well taken care of even after you are gone. It may not be a direct effect, but the remaining members of your family will be given the chance to properly grieve instead of worrying about expenses at the time of death.
What to Consider in Choosing an Insurance Policy?
Choices in life insurance policies can be overwhelming when you don’t know where to start. In deciding what plan to choose, here are some questions to start with:
Why do I need It?
Although it has been established that having life insurance is important, you must understand why you need it. Life insurance has many benefits, but for you to know that you will get your money’s worth in time, you need to purchase one that answers to what you truly need.
Am I Financially Stable?
Life insurance is a big purchase that will stretch on for years or even your lifetime. Do you have a steady source of income? Will you be able to continuously pay for the premiums? These are some of the best questions you need to ask yourself before purchasing life insurance.
It is important to determine whether or not you have sufficient means to pay for the premiums without having to sacrifice your daily lifestyle. Thus, it is ideal to purchase life insurance if you are already financially stable because the reality is that life insurance is intended to protect your family for the future and not for the present.
How Much Coverage Do I Need?
The amount of life insurance you need depends on your personal and financial circumstances. You may calculate your ideal insurance benefit by subtracting the difference between your resources (income and liquid assets) and financial obligations (expenses and debt). You can also seek help from a financial advisor who can provide you with a solid estimate.
Once you figure that out, your selected insurance company can help you find the best kind of policy to meet your needs. By estimating the amount of coverage you need, you can come up with a justifiable price for your potential premium.
No one likes to think about death. It can be uncomfortable to talk about, but we must acknowledge mortality for us to plan our lives and the future of our families. An open discussion about death would be even more empowering and surprisingly, life-giving.
That’s what life insurance is for. The process of purchasing it can seem complex to new eyes, but with the proper guidance, you can choose the best option based on your situation and needs. To choose the right policy, the important thing to remember is to do your research and ask questions to fully understand the underlying provisions.
