The Basics of Life Insurance

If you’ll soon be in the market for a whole life policy, here’s the meat and potatoes on insurance coverage. Life insurance coverage protects your family for your entire lifetime with ongoing income to replace your salary if you die prematurely. It can also provide timely emergency funds for medical, legal and funeral costs should your family need it. Life insurance provides coverage for many other situations after death.

Here are common reasons to get a policy:

  • It can be used to liquidate consumer or business debts or mortgages, or to create a fund that would enable the surviving family members to service the debts.
  • It provides large amounts of cash at death for children’s college expenses or other capital needs.
  • It provides cash for federal estate and state inheritance taxes, funeral expenses and administration costs.
  • It provides funds for the continuation of a business through a “buy-sell” agreement.
  • It can fund inheritances to children, grandchildren or others without the erosion often caused by probate costs, inheritance taxes, income taxes, federal estate taxes and transfer fees.
  • It can be used to fund charitable organizations.
  • Help preserve confidentiality of financial affairs. Life insurance proceeds payable to someone other than the deceased’s estate are not part of the probate estate and are not a matter of public record.

Policy Benefits

Life is designed to provide financial protection along other living benefits, including a guaranteed cash value accumulation over the lifetime of an insured person. There are different types of whole life policies that have a variety of options. Types include an endowment, limited payment whole life insurance and indeterminate premium whole life insurance.

The policyholder agrees to pay their insurance company a set premium for the rest of the insured person’s life . In return, the insurance company agrees to pay a fixed death benefit when the insured person dies if the policyholder has continued to pay the premiums. You, as the policyholder, can change the premiums and death benefits to suit your current budget, so this appeals to a younger generation. Policyholders who discontinue paying premiums and terminate their policies are entitled to the scheduled cash surrender value.

One benefit of a whole life policy is that regardless of your health, the policy can’t be cancelled by the carrier as long as premium payments are made regularly on time. Another benefit is that whole life policies offer tax-deferred cash value growth that is accessible via loans. Cash value is the amount available if you surrender a policy before its maturity or your death.

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