Purchasing a life insurance policy is one of the foremost ways you can protect your family. Not only is it an integral part of your financial plan, it offers peace of mind to you and protection for your loved ones. Most notably: life insurance can be there for your loved ones to pay expenses or recoup income losses while they are grieving.
With so many affordable options out there, it’s easy to find one that fits in with your financial needs and goals. However, while there are many benefits of life insurance, not all life insurance policies are the same. There are many kinds to choose from, each with unique merits and drawbacks. At Trajan Wealth, we’re here to walk you through the basics of life insurance so you can begin to make a plan for your financial future!
First Off, What Is Life Insurance?
By making premium payments, you enter an agreement with your insurance company ensuring that a lump sum will go to your beneficiaries after your death. This helps mitigate financial concerns that can arise and provides financial relief to your loved ones during a difficult time.
There are two main types: term and permanent. Permanent insurance provides lifetime coverage while term only covers a certain period of time. (More on this later!)
Do I Need Life Insurance?
The short answer: yes. There are a lot of reasons to invest in life insurance, and almost no drawbacks. Here are just a few of the benefits of life insurance:
- Taking Care of Loved Ones.
If anyone depends on your income (such as children, a spouse, or aging parents), insurance will provide that income, which can help keep a household afloat and running smoothly. Did you know that life insurance payouts can help pay for someone to come in and help with household chores that might become hard to manage? They can!
- Leaving an Inheritance.
Regardless of the rest of your financial situation, life insurance can set up your beneficiaries with an inheritance! This can help loved ones establish financial stability, and potentially cover larger costs down the line, including college, down payments, and weddings.
- Paying Off Debt.
Beyond providing an inheritance, it can help your loved one pay off your acquired debt, including car or mortgage payments. Did you know it can also help pay for funeral and burial costs? That’s great news because both of those can become quite costly.
Peace of mind isn’t the only benefit — there are actually tax advantages when you decide to get life insurance! In most cases, the full amount owed is paid out to your beneficiary, without having income tax taken out of it. That means the money you invest gets to be utilized by your loved ones. Simply put, life insurance is an effective strategy for investing in the future.
Term vs. Permanent Insurance
As we mentioned earlier, there are two main types of life insurance: term and permanent. We’ll take a closer look at each one.
What Is Permanent Insurance?
Permanent life insurance is a type of policy that lasts for the duration of the policy holder’s life. As time passes, these policies often build cash value. This means that they are considered an asset, and can act as a type of savings account.
In many situations, you may be able to withdraw money that your insurance policy has earned. You may also be able to take out loans against the policy, using the policy as collateral.
There are many different subcategories of permanent insurance to choose from, depending on your unique needs.
What Is Term Insurance?
Unlike permanent insurance plans, term insurance plans last for a certain, specified amount of time. Your insurance payments will remain the same during the period of your insurance. If you should pass away during this time, family members can claim the policy and receive a tax-free payout.
If you do not pass away during the term, you may have the option to renew year by year. Often, the rates can change annually during extension periods.
The majority of life insurance policy holders have term insurance.
Which Type Of Life Insurance Policy Is Best?
Term life insurance policies are far less expensive than permanent policies. These policies are a fantastic way to protect your family without having to jeopardize your budget or financial security.
With term insurance policies, you can be sure that your family won’t be suddenly left without your income if you pass away. You can opt for a policy length that covers the time you will be in the workforce.
With permanent insurance policies, you spend a significant amount per year. However, you are covered for life! You will likely also accrue cash that can be withdrawn during your lifetime, and the policy acts as an asset to you while you are living.
It’s also not an either/or situation. You can also decide to use a combination of both to make sure all of your bases are covered.
The best choice is the one that is right for your unique situation. You’ll want to look at your individual lifestyle and needs before you choose. And as things change, reassess your chosen insurance to see if it’s still the best fit for you. If you need help figuring out what option(s) sound best to you, Trajan Wealth can help!
Trajan Wealth Can Help You Pick the Right Insurance Option for You
At Trajan Wealth, we’re here to answer your questions and help you get your finances solidified. Check out how we can help you navigate life insurance. Ready to invest in your financial future? Reach out to connect with our advisors today!