Life Insurance
What would the financial future look like if you, your partner, or business partner passed away?
Life Insurance was established to provide funds upon death. It provides a tax-free payment to your named beneficiary.
Life Insurance is used as a cost-effective way to protect future financial obligations after the death of an individual. Your greatest asset is your ability to earn income. If your income suddenly stopped for the next 10 or 20 years, how would that affect your loved ones? The most common uses of life insurance are to cover debt(s), income, and funeral expenses. There are also many other common uses to life insurance (i.e. financial/investment planning, funding buy-sell agreements among business owners, covering capital gains or estate taxes, etc.).
If you’ve ever wondered how someone carry’s on financially after a loved one has suddenly passed away, in most cases it is because of proper life insurance planning. Adequate life insurance enables your family to grieve without the added burden of financial hardship.
Life insurance can help:
- Provide money to pay for burial or other final expenses
- Ensure your loved ones are able to sustain their current lifestyle and stay in their home
- Cover your debts, including your mortgage
- Provide an income for your family
- Cover the cost of childcare
- Provide a nest egg for your family or a favorite charity
- Cover the cost of postsecondary education for your children
There are other benefits to having life insurance:
If the beneficiary is a named person and not your estate, the death benefit is free from probate costs.
Types of insurance
Term Insurance (Like paying rent) – offers insurance for a stated period of time. This is the most cost-effective method of covering temporary needs. Common types of term insurance include Term 10, Term 15, Term 20, Term 30, Term to 65, and Term to 75. Term policies offer lower initial premiums, although premiums increase at the end of the term.
It is extremely important to ensure that your term policy includes the option to convert. A convertibility option is included in most term policies and ensures that you have access to change your term policy to a permanent policy non-medically. This is especially important should you develop a health issue after you purchase your term life insurance policy.
Permanent Insurance (Like owning a home) – has no fixed term and is designed to cover you for the rest of your life. Some permanent products have flexible premiums, investment components; cash surrender values or the possibility to borrow against the cash value of the policy.
The three types of permanent policies include:
1) Whole Life – this permanent coverage has guaranteed insurance proceeds with level premiums. These plans can sometimes gain in value, depending on investment options. These policies include cash surrender values that grow in value over the life of the contract. Another plus to whole life insurance is that it might be a “participating policy”. Participating policies may be eligible for dividends and can have a paid-up insurance option. Depending on the dividends option in your insurance contract, these dividends can be taken in cash, applied to reduce your premium, taken in additional insurance or left to increase the cash values. Dividends are not guaranteed.
2) Universal Life – offers permanent coverage with level (or increasing) death benefits and with level premiums. Universal life has two parts: a life insurance part and a cash accumulation part. What separates this permanent type of coverage from the other two types is the option to invest money tax-sheltered. Any monies that you opt to invest can typically be withdrawn at any time. Any money invested into the tax-sheltered account of the policy would be paid out tax-free at the death of the insured, which makes this an attractive investment option for many people.
3) Term to 100 – although the name suggests it is term coverage, it is in fact lifetime coverage with guaranteed level premiums. This type of policy offers no “bells and whistles” and simply is lifetime insurance coverage with guaranteed death benefits and guaranteed premiums.
Guaranteed Issue Life Insurance – These policies are for clients who have health issues and who consequently have a hard time obtaining a standard or rated life insurance policy. There is little to no medical underwriting required for these types of plans. Guaranteed life products can also provide cash values & paid-up insurance options.