Are you thinking about buying life insurance for the first time? That could be a smart move. While no one likes to think about dying, it’s a risk that everyone must face at some point. If you’re relatively young and healthy, your death may be unlikely. However, people do pass away unexpectedly, and your passing may leave your family in a difficult financial situation.
Life insurance minimizes the financial risk associated with death. Your life insurance policy will provide a tax-free lump-sum death benefit to your designated beneficiaries. They can then use those funds to overcome financial challenges such as debt, loss of income, education expenses or any other purpose.
If you’ve never purchased life insurance before, you may be overwhelmed by the options. It’s difficult to know which type of policy is right for you or how much coverage you need. Below are three common questions many people have during the purchasing process. Your financial professional can also help you find the right protection for your needs.
How much coverage should you buy?
This is the major dilemma many people face with regard to life insurance. Clearly, you want enough coverage to protect your spouse, children or other loved ones after your death. However, you also don’t want to overpay for too much coverage. What’s the answer?
The best approach is a needs-based analysis. This involves an evaluation of the specific costs your family may face after you pass away. For example, would they need to replace your lost income? Would they need money to pay off the mortgage or other debts? Perhaps you’d like to leave enough to help your children pay for college or your spouse to fund retirement. In a needs-based analysis, you and your financial professional examine your specific objectives and then determine the appropriate amount of coverage.
Which type of policy is right for you?
Not all life insurance is the same. Policies fall into one of two broad categories: term and permanent. Term insurance provides protection for a limited period of time, like 10 or 20 years. It’s a cost-effective tool if you need insurance while you have young children in the home or while you’re paying down a mortgage.
Permanent insurance provides coverage for life, assuming you meet all premium requirements. Permanent policies also have cash value that accumulates on a tax-deferred basis. You may be able to use that cash value at some point as an emergency reserve or supplemental income. There are many different types of permanent policies available
There’s no easy answer as to which type of policy is right for you. If you’re budget-conscious, you may want to consider a term policy. If you have a permanent, ongoing need for protection, a permanent policy may be a more appropriate fit. However, the only real way to answer the question is to consult with a financial professional and analyze your goals.
Whom should you name as your beneficiaries?
Your beneficiary is the person who will receive your death benefit after you pass away. It’s actually possible to have multiple beneficiaries, which may be appropriate if you want to split the benefit among children or some other group of people.
Be careful leaving your death benefit to minor children, though. Some life insurance companies won’t make a payment to minors. Instead, the court may appoint someone to manage the money on their behalf, and that person may not share your goals or wishes. Instead, consider setting up a trust on behalf of your children and specifying your wishes in the trust document. You can leave the life insurance to the trust instead of directly to your kids.
Finally, remember to check your beneficiaries regularly. If your life changes, you also may wish to change one or more of your beneficiaries. For example, people sometimes get divorced and forget to update their beneficiary. When they pass away, the ex-spouse still gets the benefit, even if that’s not what the deceased intended.
Ready to find the right coverage for your needs? Let’s talk about it. Contact us today at DSM Financial. We can help you analyze your goals and develop a plan. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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