Generally, people buy life insurance to provide financial security for their loved ones after death. A policy’s payout can help them pay off debt, cover funeral expenses, and make day-to-day living less burdensome.
Peace of Mind
In the event of your death, a life insurance payout can help ease the financial burdens that would fall on those left behind. A policy can cover debts and expenses like funeral costs, child care, or mortgage payments. It can also provide income for your spouse or partner to stop working and stay home with children. Many policies, such as from Demont, come with a cash value component that earns interest at a set rate. This feature may make whole life insurance a better investment option for some people. However, the money you can borrow from your policy is typically less than you’d get from an alternative such as a Roth IRA or 401(k). Before insurers issue a life insurance policy, they must assess the risk and approve you through underwriting. The insurer will ask about your health and lifestyle and potentially conduct a medical exam to ensure appropriate policy.
Funeral expenses are one of the top reasons why people get life insurance. Other final expenses include unpaid medical bills, outstanding mortgage or car loans, and credit card debt.
If these expenses aren’t paid off before you die, they can strain your loved ones financially. Even if your estate has enough money to cover these costs, it may take months before beneficiaries receive a settlement. A final expense policy can give your beneficiaries fast access to thousands of dollars at a difficult time. A final expense life insurance policy is similar to whole or term policies but typically has lower coverage amounts and premiums. It may also require no medical exams, and the premium won’t increase over your lifetime. The death benefit can be used for whatever the beneficiary decides, including a legacy nest egg, mortgage payments, or paying off credit card debt. You can select a beneficiary and leave instructions for how the death benefits are allocated, but the final say is in the hands of your beneficiaries.
Having enough life insurance to cover your financial responsibilities can help ensure that those who depend on you won’t be left with debt or other outstanding expenses upon your death. Generally, experts recommend having a policy that is about seven to 10 times your annual income. Many group benefit plans offer a supplemental life insurance option to pay out a death benefit if one of your dependents dies. This coverage typically covers a spouse, domestic partner, or children.
Having a life insurance policy in retirement can provide a source of income that isn’t subject to the same market volatility that can affect other retirement assets. This strategy can be used with dedicated retirement savings plans such as IRAs and 401(k)s. Permanent life insurance policies that build cash value can be exchanged for an annuity in retirement to generate a stream of monthly payments for as long as you live. This can be a tax-advantaged method of creating supplemental income in retirement, but it’s important to consult a financial planner or fee-only insurance consultant before pursuing this option.