There’s nothing like starting a month by making all kinds of resolutions, except for, perhaps, proving that you can keep all of them. Yet, as the calendar switches from December 31 to January 1, you have probably already made your New Year’s Resolution – another one of those things that you are bound to forget about in just a week or two.
Maybe one of your resolutions is to be financially healthier next year. If so, then you might want to consider taking a look at your life insurance coverage. There are various types of policies one can compare and buy online these days. To help clarify any confusion that may arise while getting one, we’d be sharing some basic info on what is life insurance and how it works.
What is Life Insurance and How Does It Work?
Life insurance provides financial protection for the people you care about. You pay a monthly or annual premium to an insurance company and in exchange, they pay your beneficiary, who you appoint before death, a sum of money tax-free if you pass away prematurely while the policy is active.
One can customize the plan he or she comes up with to suit updates made to their family’s needs. By choosing a policy type, duration and money paid out, one will be able to come up with a life insurance plan that works best for him or her, thereby providing adequate coverage to you and your family in case of any unfortunate events.
Why is Life Insurance Important for You?
1. Repaying Debts and Mortgages
All debt accrued under an insurance policy is still the financial responsibility of the insured once they are deceased. However, without a source of income, it is not always possible for legal heirs to pay off any outstanding accounts or debts. The maturity benefit from a life insurance policy can be of significant help in this situation.
2. Funding for Your Child’s Education
If you invest in a life insurance policy when you’re in your twenties, the policy will likely grow to maturity during the period that your child goes off to university. The benefits of this are two-fold. Firstly, they can provide an added source of income on which you can draw to meet part of the high costs associated with tuition.
Secondly, life insurance policies often have strong death benefit pay-outs which means if something happens to you and you don’t have enough time to put something away for your child’s education, there would be money available to help them with their studies.
3. Preparing for Retirement
If you don’t have a retirement plan already, getting a life insurance plan can help you start right away. By investing in a protective cover when you’re younger, you get to enjoy lower premium costs. For this reason alone, it makes sense to invest with the help of a trusted insurance professional, someone who will sit down with you and help figure out the best course of action for your situation so that you end up satisfied with the kind of coverage protection that’s right for your lifestyle and personal needs.
4. Creating an Inheritance
If you have aging parents or are a parent yourself, one thing you have to make sure of is that they’re taken care of during your absence if the unlikely should happen. A good way to ensure this happens is by ensuring that all of your dependents are financially secure. You can do this in several ways like buying life insurance or even getting into real estate – but most importantly it is all about setting up things so that the people who you leave behind along with your business can live comfortably without having anything to worry about, other than spreading your legacy.
5. Enhancing Financial Health
A life insurance policy can be the safety net you need during challenging times. It is a policy that you acquire which guarantees the maturity benefits promised. It assures you that your post-retirement needs will be met and also ensures that your legal heirs are financially secure in the unfortunate event of your death.
6. Diversifying Your Investment Portfolio
A life insurance policy is one of the few options that can guarantee your family enough funds to be financially secure after your demise. Life insurance policies offer lower risk than other investment options with similar returns. So, if you’re someone who’s looking for a stable and low-risk investment option to balance out your overall portfolio, purchasing a life insurance policy may help you achieve this goal. All you have to do is pay your premiums each month so that your funds are safe in the event of your untimely death and will ensure that your family will be taken care of once you’ve passed on.
7. Replacing Loss of Income
A life insurance policy is a contract under which an insurance company agrees to pay a designated beneficiary a specified amount of money upon the death of the insured individual. Life insurance is purchased by an individual (or on behalf of an individual) and designed to help protect his or her family and/or estate against the financial burden of debt should something unexpected happen to that person. Typically, life insurance is purchased at a young age when families will have less income and fewer assets but more expenses (in comparison with being married with children). If you’re the primary breadwinner in your family, a life insurance plan can help secure the future for not just yourself, but your loved ones as well.
The Takeaway
Life insurance plans have historically offered consumers and their loved ones assurance of financial stability in the event of untimely death. They have grown from simple burial policies to broad plans that protect against many other financial loss scenarios. Moreover, there are no indirect taxes involved with life insurance, which makes it perfect for anyone looking to build a financially secure future.