Life Insurance as we know it has been around for hundreds of years. As society evolves, so do the many forms of Life Insurance. Today there are various kinds of Life Insurance, from simple Term Insurance, Whole Life, Universal Life, Joint First to Die, Joint Last to Die, Guaranteed to Issue (No Medical), Funeral plans, & the list goes on. People purchase life insurance for many reasons. It is the epitome of an unselfish purchase, because it is one of the few things in life which the purchaser, will never personally use. It is for the beneficiary. People have various types of challenges in their life. When it comes to financial problems, there are both short term and long term problems. This article will discuss the role of Life Insurance and how it can help alleviate both problems.
There are two monumental occurrences in everyone's life. The day they are born and the day they die. As we go through childhood and grow into adulthood, a person begins to take on various responsibilities in life. They buy their first home, get married, have children, raise a family, perhaps start their own business, whatever it may be, these things impose financial responsibilities. For most people, this is when their financial obligation is the greatest; the first mortgage is usually much greater than the down payment. From the responsibility to provide food and shelter for family to covering a line of credit to start a business, can represent an additional mortgage. Whatever the case may be, a person's debt is usually greatest when in early adulthood. As people get older, the family grows, and moves on. A mortgage gets paid down and eventually paid off. The business becomes profitable and hopefully pays off its obligations. Individuals make investments in planning for retirement, and ideally, the financial responsibility decreases over time. Retirement on the other hand is another issue.
So, when it comes to financial planning, one of the key components is the proper use of Life Insurance. Life insurance purchased at an early age is really inexpensive. Term Life Insurance, is insurance designed to give you the maximum amount of coverage for the least cost. For example, a 30 year old non smoking male, in average health will pay around $25 per month for $500,000 of coverage for a 10 year term. So, if this individual earning $40,000 per year, had a $200,000 mortgage, and $20,000 of consumer debt, upon his death, his beneficiary would have $280,000 in tax free money. When you break it down, that would buy his spouse, a 7 year readjustment fund of $40,000 per year to draw on. Fairly inexpensive in cost for what the end result could provide. At the end of the original 10 year term, age 40, the coverage would automatically renew for another 10 year period, at a pre-established rate. It could be reduced or discontinued if the person no longer required the coverage. It is used for the so called “short term” challenges.
So, why Universal Life Insurance also? The long term problem everyone faces is final expenses. Let's face it, we are all going to die one day. How much we have left, or how much we leave behind is unknown until that time comes. So, why place the burden on your family to take care of those obligations? A simple $50,000 Universal Life Insurance permanent plan, would cost approximately the same amount as the Term plan mentioned previously.
Why purchase both plans at a young age? Fairly simple; we tend to be more healthy when we are younger, thus the cost of the insurance is less. So, back to the example of the 30 year old male and the $500,000 of Term Insurance. We all know what will happen at death, but what if he lives longer than the Term Insurance is in force? Probably, over time, the mortgage gets paid off, lines of credit get eliminated, investments are made and the need for temporary or term insurance is no longer valid. The small Universal Life Insurance policy will always be there to take care of final expenses. If a person’s health takes a turn for the worse, as they age, coverage may no longer be available for ongoing permanent needs. The Universal Life Insurance policy also has some provisions built into it, whereby money grows tax free in an investment account and increases the death benefit. Should a financial circumstance require the need for access to money, an individual could withdraw some money from the policy. The option of putting it back, or not, at a later date exists.
In summary, there are different types of Life Insurance. No one has a crystal ball to see into the future. Most people are able to visualize 10 year parts of their life. Hence the need for temporary, or Term Insurance to cover the greatest expenses for the least amount of money. However, we will all have a final expense. Nobody really knows when that will be. Whether you want to have just enough left over to take care of that final expense, or leave some behind for a loved one, or charity, Universal Life Insurance helps take care of that permanent problem.
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