September is life insurance awareness month, thus we will do our part to discuss the overall benefits of these products. When compared to other financial instruments, life insurance policies have several unique and attractive attributes.
Policies will come in many shapes and sizes with several options for the insured, but it may be most important to simply touch upon the purpose of life insurance.
For most of us, there are future obligations both known and unknown. In many cases, term life insurance will be the best product to account for said obligations. Policies with large face amounts are usually quite affordable and can adequately cover future expenses for the insured. Additionally, life insurance proceeds are not subject to income taxes for policy beneficiaries and thus provide a known benefit.
Many young families have mortgage debt, student loans, and car debt among other liabilities. Term life insurance provides the needed liquidity to cover these obligations for a surviving spouse. The length of the policy, or term, most commonly is 20 to 30 years. By the time the term has expired, it is conceivable that much of this debt has been paid down and would be easier to manage.
Children are another concern for most families. The cost of a higher education is significant at many public and private universities alike. And the inherent costs of raising children is no small amount. Term life can also account for these outlays should they be needed. A twenty or thirty year term life policy will give parents a reasonable grace period of time to see their children grow into young adults.
Most people think of disability insurance when discussing income replacement. Life insurance can also serve this purpose for the primary financial provider in a household. Term, universal, and whole life policies will all serve the purpose of replacing lost income. Insurance proceeds give the surviving beneficiaries needed liquidity to cover everyday expenses in times of need.
In all, a well thought out life insurance plan will cover debt while also providing for future obligations such as education and lost income. Term policies protect against the unexpected, provide peace of mind, and literally buy time for young families.
Wealthier consumers use permanent plans or whole life insurance for estate and retirement planning. When structured properly, life insurance can avoid both federal estate and state inheritance taxes. Not all states have an inheritance tax, but those that do may not count life insurance proceeds that are directly paid to a named beneficiary as part of the estate. New Jersey and Pennsylvania are two such states.
Whole life plans also immediately increase the value of an estate to provide needed liquidity for the beneficiaries. The proceeds can be used to pay taxes and expenses in order to avoid a quick sale of valuable assets. In other cases, permanent life might be used to keep a business afloat or to buyout a partner. In other words, guaranteed whole life has several advanced uses for those who need to protect an estate or a business.
In summary, there is a strong need for consumers to be properly insured. Whether it is to protect wealth or to provide for their families, life insurance policies are an extremely important piece of any financial plan. Contact us today to see which life insurance policies might best fit your family or business needs.