Protecting your most important aspects is crucial in creating a solid financial plan. That’s why people insure their homes and cars. But nothing more is necessary than your life and your ability to make a living. As such, you should also ensure your greatest asset – you. Insurance entails providing a financial safety net that helps you care for yourself and those you love when you need it most.
As you move through life, raise a family, find a partner, and maybe start a business, the importance of a long-term insurance plan increases. The danger of not having enough insurance coverage is immense. According to Investopedia, an accident victim or patient with a health issue, for instance, could go bankrupt or experience poor credit due to an expensive treatment plan. Insurance is like buying a promise. A promise that your insurance provider will assist you if something catastrophic happens.
Sometimes, it’s easy to dismiss the value of insurance since it is an intangible product and doesn’t provide immediate benefit. This article will explore five ways insurance can change your life.
Table of Contents
1. Provides a Safety Net for Your Family
Insurance protects your family when things go wrong. Life insurance can support the life of other family members should a member be lost. Your policy can help replace the loss of your income if your family depends on your income to pay bills. They can use the death benefit to pay off debts like a mortgage, credit cards, and car loans – reducing the financial stress.
In addition, insurance can help improve your family’s quality of life. For instance, a health insurance policy can help prevent bankruptcy in case of a severe illness or accident of a family member. Reports have shown that you and your family are just one serious illness away from bankruptcy. In a survey of more than 900 Americans who filed for bankruptcy between 2013 to 2016, hospital bills and income loss due to illness contributed to two out of three bankruptcies. Besides, uninsured people tend to delay treatment until things get out of hand.
An insurance policy can protect your family in the following ways:
- Financial Stability: In case of death, especially the family’s breadwinner, the family members won’t have to change their lifestyle.
- Lump-Sum for Crucial Expenses: The best part of a life insurance policy is the extended returns at crucial stages of life. For example, a lump sum from a benefit can come in handy during retirement or when your child goes to college.
- Support during Tough Times: Life Insurance cover can help your family members manage expenses during tough times. This could include medical bills during hospitalization, funerals, and legal services.
- Pay off Loans: People take loans for various purposes. If life happens, and the loan borrower passes away untimely, the dependants need to repay the loan. By using the borrower’s life insurance, beneficiaries can quickly repay the loan.
However, the main advantage of life insurance is income replacement – to ensure your loved ones don’t experience financial difficulties upon your death. It’s therefore not surprising that $250k insurance death benefit is one of the most popular options for life insurance. As a rule of thumb, you should buy an amount of life insurance to provide income similar to if you were alive. According to CNN, your death benefit on your policy should be ten times your annual salary. Your insurance provider can help you evaluate your needs to determine the best coverage for your family. You can click here to see how much is a $250k insurance.
2. Build and Transfer Wealth
Life insurance could be an effective way to transfer wealth from generation to generation. Life insurance can go beyond income replacement or support beneficiaries upon death for high-net-worth individuals and families.
When used as part of a well-thought-out wealth management plan. Life insurance can:
- Increase wealth
- Cover estate taxes
- Balance inheritances among beneficiaries
- Secure a legacy
- Enable beneficiaries to retain ownership of vital assets like a family business
Depending on how you use it and the type of life insurance, permanent life insurance can be considered an asset. It can grow in cash value, and the beneficiaries can convert it into cash. The calculated cash value can be considered an asset when calculating one’s net worth.
Permanent life insurance can offer many benefits associated with long-term investments such as mutual funds and IRAs. It provides options when building a diversified wealth management portfolio and can also be an asset for
hedging against market risk.
Here are some types of asset-generating life insurance policies:
- Whole life insurance: With this type of insurance co-, you can accumulate cash value over time by allocating a portion of the premium to a cash-value account. Since the interest, capital gains, and dividends from the cash value aren’t subject to taxes. This makes it a popular asset-building system. Besides, the policy owner can borrow from the funds in the account as a policy loan.
- Universal and Variable Universal Life Insurance: This insurance policy can also accrue interest over time, and the policy owner can borrow from it while still alive. However, unlike whole life insurance, universal life insurance allows more flexibility in premiums and death benefits. It enables the policyholder to invest any interest earned in sub-accounts similar to mutual funds.
3. Supports Your Needs
Some life insurance policies have valuable “riders.” These are contractual provisions that provide benefits before death. Insurers may amend the terms of a basic insurance policy to provide additional coverage. In sum, riders tailor to meet your needs as a policyholder. However, riders come at an extra cost and in various forms. In some cases, you may not be able to add a rider after the policy has been initiated.
The benefits of insurance riders include savings from not buying a separate policy. For instance, a life insurance policyholder has a terminal illness. They can add an accelerated death benefit rider on a life insurance policy. This rider would allow the insured to enjoy a cash benefit while living. You may use this fund however you wish, whether to pay for medical and final expenses or improve the quality of life.
4. Replaces a Portion of Your Salary if You’re Unable to Work
Have you thought of how you will earn income when you can’t work anymore? Depending on the level of savings, people struggle to pay for essential expenses such as rent and mortgage when they experience loss of income due to an accident or illness.
Insurance policies like short or long-term disability insurance make sure you get a regular income until you can work or retire. Like life insurance, disability insurance helps protect you and ensure you can still take care of your family. Don’t you think income insurance is essential? Think again. Research reveals that over one in four of today’s 20-year olds will become disabled before reaching age 67. The situation could become more complicated if you’re self-employed and have no sick pay to fall back on. The odds are too high for you to skimp on long-term disability insurance.
Many companies offer their workers long-term disability insurance, so take advantage of that if available to you. Don’t assume your employer will continue to pay you a certain income level. Only a few employers support their staff for more than a year if they’re off sick. However, the duration depends on each organization’s policy. Check what your employer will provide for you if you’re sick. For those injured or disabled, while performing their jobs, most states require the employer to pay worker’s compensation insurance for the victim. In exchange, the affected worker may not sue their employer for negligence.
Whether you work for a company or are self-employed, you should consider long-term disability insurance. Note that the disability must have occurred after the policy’s issuance for an insured to receive benefits. You would typically need to provide medical information, often confirmed by a physician.
5. Fund a Charitable Cause
Life insurance and help you achieve your long-term goals of donating cash to your favorite charity. In addition to tax savings, contributing to a charity organization lets you choose how much premium you pay and what type of policy.
In addition, your gift is safe from litigations as life insurance is considered separate from your other estate assets. Your donation isn’t subjected to estate debts or taxes. You can make a substantial contribution through minimal monthly or yearly payments. Another benefit is that you’ll receive charitable tax receipts as a reward. For instance, the premiums on a $20,000 policy will cost you far less than the payout amount over time. Add your tax credit, and you have a sizable cash gift.
The following are some ways you can donate a life insurance policy to a charity:
- Name the charity as the beneficiary in an existing policy.
- Take out new life insurance in the name of the charitable organization.
- Transfer ownership of your current policy to charity.
It doesn’t take much to leave a lasting legacy. You can significantly impact the groups or issues your charity supports with life insurance. However, make sure you spell out your wishes in your will if you want to include charitable gifts.
The benefits of insurance, especially life insurance, are immense. Besides getting to protect you and your family’s financial well-being, you can also use it to plan every stage of your finances and even transfer wealth to the next generation. If you’re not sure which insurance is the best for you, contact a professional. They will take time to learn about your needs, listen to your concerns, and educate you on the different options that best fit your needs.