Life Insurance is your friend, here’s why.
Financial planning is a fundamental part of life and as we grow older, start a family, or grow our business, we understand the importance of having a safe financial back-up for everything just in case. Similarly, everyone needs a financial plan to protect their family when they leave them forever. At the time of death, a life insurance policy can cover funeral expenses, debt, or mortgage payments and can also guarantee a consistent income for your family. This can save your family from the burden of debt and financial dependence.
There are several life insurance policies in the market that you can choose from depending on your level of income and your financial asset mix. A typical insurance policy is affordable and allows suitable coverage of all liabilities and expenses your family will have to endure when you are no longer there to help. This can give you peace of mind knowing that your family will be financially protected and over the years.
Whether you are single, in a relationship, or married and have kids, life insurance is equally important for all. Life insurance can cover all kinds of debt including personal loans, mortgage, credit card loan, an auto loan.
Types of Life Insurance Policies
Term Life Insurance
Term Life insurance is often called pure life insurance, because it is only available to the beneficiaries and is available when the insured passes away. Although the life insurance of this type is only applicable when the insured dies, it guarantees the payment to beneficiaries whenever the insured dies within a specified period. Most commonly, this period is 10-30 years.
Whole Life Insurance
Whole life insurance is a policy that grows your cash value over time and will last for the duration of the insureds life. The policy is dependent on cash value building. A part of the premium is invested and it earns interest. The life insurance is permanent for life and it covers the duration of your entire life, not specific to your life years.
For example, if a person has a term life insurance until 70, the same person’s beneficiaries will receive the amount whenever the person dies. However, whole life insurance is paid, even if you continue to live.
Universal Life Insurance
Universal life insurance is the all in one investment. It is permanent life insurance that also allows a personal savings and investment plan. Another key element that makes universal life insurance an attractive option for policyholders is low premiums. The policyholder must pay a monthly fee with universal insurance. This monthly fee is split into two parts by the insurance company, one part is kept for insurance and the other part is saved. The savings are invested to accumulate interest. The payment of premiums can also be flexible and allows the policyholder to choose the premium payment amount from a wide range.
The death benefit is also known as the face value is the lump sum of money the insurance company agrees to provide to the beneficiaries recognized in the policy after the insured deceases. For example, if the insured designated children as beneficiaries, then the receivers of this amount are the deceased’s children. The insured decides the death benefit amount and chooses a plan that will suit the financial needs of the beneficiaries. Afterward, the insurance company determines whether the insurer qualifies for insurance and matches the age, health, and other criteria.
A premium is the amount of money decided by both; insurance company representative and the insured or policyholder. Premium if paid according to the agreement made by both parties deems the insured eligible for life insurance, after death. Premiums are dependent on the size of the insurance policy; for larger death benefits, the premiums are higher.
The cash value refers to two things. Firstly, it is the insured’s savings account, from where payments are made. The money can be withdrawn from this account by the insured and the cash is accumulated while the process is tax-deferred.
Secondly, the policyholder can also use this amount to pay for premiums, purchase more insurance plans, etc. Depending on rules set by some insurance companies, if the cash value decreases, the death benefit may also decrease.
As you’ve just read, all the insurance policies available in the market have their pros and cons. At Yellowbrick Financial, we help you decide which insurance policy is suitable for you. We make sure you have an insurance policy that provides suitable coverage because the last thing you would want is to burden your family in the event of your passing. Getting more informed and educated before investing will help you make the right decision!