Do I really need life insurance?

Life insurance is one of those things that everybody needs but no one likes to talk about. There are some individuals who need life insurance more than others, but in any case, getting coverage can give families peace of mind knowing they will be financially stable.

How life insurance works
Life insurance is a policy taken out with a private company that will provide families with a death benefit in the case that the policyholder dies. These benefits will allow families to pay for things like a mortgage, final expenses, debts, education or keep their standard of living. For those who depend on one main source of income for a spouse, children or others, it is important to get life insurance to avoid financial disaster in the event of a death.

In order to receive these benefits down the road, a policyholder makes payments to the insurance company in the form of premiums. These rates are based on a variety of factors, from age and gender to medical history and the amount of the policy.

Types of coverage
There are a few options when it comes to picking out a policy, and while the idea of life insurance may not seem like a fun chore, it is a necessary part of financial planning for seniors and others.

Whole life insurance covers a person for the entire span of their life. These plans typically have higher premiums than others because they cover a person’s entire lifetime. Whole life insurance usually has a fixed premium and a cash value option that acts like a savings account. The amount accrued over time is tax-free. The savings component of the plan can help families and individuals plan for retirement later in life.

Universal life insurance is a permanent policy that allows for more flexibility. Premiums and the total amount of the policy are set by the holder and are subject to monthly minimums. This allows a person to raise or lower their premium throughout their life. Payments made to the policy over time will build interest, similar to a savings account. When benefits are distributed to the beneficiary, the proceeds are exempt from income tax. A person may also make withdrawals from their universal life insurance account for personal use to pay for education, retirement or other objectives.

Term life insurance is a policy that provides coverage for a set period of time, for example, 10 or 20 years. Over the course of the policy, premiums are maintained at the same level. Once the policy term has expired, it is possible to continue getting coverage, but it may be at a higher premium. Compared to other types of life insurance coverage, term is generally less costly, but a person will need to carefully consider how many years of insurance they might need.

Another option when looking for coverage is to purchase final expense insurance in addition to a regular life insurance policy. This extra coverage is intended to help pay for medical bills, credit card debt and other costs. Investing in final expense insurance ensures that families are not left with a large financial burden.

What is the cost?
Life insurance premiums range in cost based the type of policy and how much is guaranteed in benefits. Choosing a type of life insurance plan will depend on age, health and financial situation. When weighing the cost and benefits of buying life insurance, it is important to remember that the financial burden placed on families after a death can make a difficult time even harder.

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Pete Blasi