Life insurance pays a death benefit, a sum of money, to the person or people you name as beneficiary. When you pass away, your beneficiary can use this money to help maintain some semblance of normalcy and certainty without you. The death benefit can help:
Replace your income. Because your paycheck is so important to your family's standard of living, losing it can be financially devastating. A life insurance death benefit helps to provide the money your paycheck does, to pay the bills or pay for someone to help keep things going.
Pay the mortgage or rent. Being able to stay in their home means your children can stay in their school district and familiar surroundings.
Continue the dreams you had together. The death benefit can be used as a means to help balance inheritances among heirs. If one child, for example, inherits the family business, the life insurance death benefits of approximately equal value can go to the other children.
Continue a dream. Being able to keep a business in the family or maintain benefits you provide to employees can help ensure the longevity of the business.
The best type of life insurance for you depends on what your needs are and how long those needs will last. The two main types of life insurance are term, which is for short-term needs usually of 30 years or less, and permanent (or Universal Life), which is for needs that tend to last indefinitely. It's common for your needs to change as your levels of responsibility change throughout your life. Earlier in life your earnings and obligations tend to be at their maximum and then taper off as you head into retirement. You could get only term insurance or only permanent, or you could have a combination of both to address the way your needs are likely to change. For many people, this means having a greater amount of term insurance and then a smaller amount of permanent to handle the pre-retirement and retirement needs.
The simplest way to estimate how much life insurance you need is to multiply your annual earnings by the number of years you'd like to supply this income to your family or business. Visit our online calculator to run the numbers. Once you have an estimate of your needs, schedule a consultation with one of our certified financial planners to discuss a solution that's right for you. Click here to schedule a consultation.
The cost of life insurance for you will depend on many factors, not the least of which is the amount and type you purchase. Your age, health, and lifestyle factors are also part of the equation insurance companies use to determine your price. Many people are surprised to learn how affordable life insurance can be. Availability and actual costs will depend on how you satisfy issuers underwriting and eligibility criteria.
Regardless of estate tax laws, life insurance plays a pivotal role in transferring wealth. Life insurance is a popular and effective tool in helping to meet estate planning goals due to its tax advantages. You use a portion of your assets to pay your life insurance premiums, purchasing death benefit coverage. When you die, the death benefit is paid to beneficiaries generally income tax free as provided in Internal Revenue Code Section 101(a). If you maintain ownership, the proceeds can then be used to pay your estate tax bill and other expenses. When compared to other funding options, such as borrowing or liquidating high-yielding assets, life insurance can be an extremely cost-effective means of funding estate expenses.
It helps maintain heirs' lifestyles. Your death may result in a significant reduction of your family's current income. Life insurance proceeds can help to replace your lost earning power.
Provides immediate liquidity. The death benefit can help pay debts and mortgages and expenses such as fees, probate, funeral, or final medical costs. Even large estates are often cash poor if they are composed primarily of assets such as closely held business interests, real estate, or collectibles.
Purchase assets from or loan funds to your estate. Under current tax law, an estate above a certain financial threshold can be decimated by federal and state death taxes that can approach 35% to 50% of its value at death. Insurance can help provide liquidity for tax liabilities.
Equalize estate distributions. The death benefit can be used as a means to help balance inheritances among heirs. If one child, for example, inherits the family business, the life insurance death benefits of approximately equal value can go to the other children.
Increase bequests. Because the premium payments for a life insurance policy are often much less than the death benefit purchased, you can give a larger gift to charities or family members.