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Thursday, May 17, 2012
Discover the perks of a life insurance
Everyone would agree that life insurance is a self-explanatory term. You buy insurance on yourself so when you die; your loved ones are able to use the death benefit in the policy to pay for expenses that they incurred with your passing away. These expenses include funeral costs, loss of income, pending loans and payments. Life insurance is essential to a family's financial plan. The hardship of providing for present and future needs is multiplied dramatically when a life is devastated by grief.
However, very few people know that an insurance policy can do much more than income replacement in the case of death. If you understand the types of life insurance policies available and learn how to use them to your advantage, you can cover so much more with your policy.
Let's start with the simpler form of insurance or LI: term insurance.
Term insurance is the cheapest type of LI available and is marked by its simplicity in structure and payments. Term LI guarantees you coverage for a stipulated period, and will pay out the death benefit to your beneficiaries if you die before the term is over. The premium to death benefit ratio is very high with term, so for young families with large liabilities, it is the perfect go-to insurance. The drawback on a nominal term policy is that the coverage expires if you outlive that period, and all the money you paid towards premiums lost to the insurance company.
Permanent insurance is usually used when you want your savings to grow in a tax deferred vehicle. This means you only pay taxes when you withdraw from the cash value that is in excess of the premiums you've paid. In your later years, you can make partial withdrawals to help supplement your retirement income. You can even liquidate this money to cover estate liabilities if you do not want your heirs to deal with taxation and other bills.
To access perks on your life insurance policy, you can pay for additional "riders", or clauses attached to your policy, that will help you get more value for your money.
Life Insurance Can Help Your Coverage Remain Active Even If You Become Disabled
If you become disabled for six months or longer, and you have the Waiver of Premium (or WP) rider in your policy, the insurance company pays your premiums indefinitely until you are better and can work again. WP comes at an additional cost and must be selected at the time of application.
Life Insurance Doesn't Work Like Auto Insurance; You Can Get Your Money Back With ROP!
Adding the Return of Premium (or ROP) rider to your policy means that you can get back some returns on the steady investments you've been making into a temporary term insurance policy. ROP refunds the premiums you paid over the life of the term policy if you are still living at the end of it. If you're lamenting the fact that your term premiums are going down the drain, ROP is the ideal solution for you. That way, you are able to cover the cost of insuring your life as well as recovering the cost to do so. ROP is slightly more expensive than nominal term insurance.
Your Insurance Policy Can Cover Your Family For A Little Extra Money
No one wants to deal with the death of a child or spouse, but the truth is, for those families that can only afford term insurance, it comes as a huge help. It's bad enough to cope with the loss, but harder to make ends meet to pay for a sudden funeral. With a child rider on your own policy, you can pay very little additional amounts to ensure that they are given a fitting farewell, no matter how short lived.
Life Insurance Provides an Additional Source of Income
The biggest benefit of having permanent (also known as cash value) LI coverage is that it offers you an investment component in addition to a guaranteed death benefit that does not expire. Permanent insurance is more expensive than term, but is totally worth considering if you can afford the high premiums.
In fact, a part of the premiums you pay towards a permanent life policy is invested in the financial market. This makes your money grow at attractive rates in the long run, giving you an added cash component that you can withdraw or borrow against for any purpose. This can include paying for the kids' college tuition, taking that trip that you always wanted or even paying for long term care needs; this money can be used as you please.
Life Insurance Can Pay Up Your Long Term Care Costs
A special rider available on some permanent life insurance policies, for an additional cost, is the Long Term Care rider. With this, you can fund your long term care needs without depleting your retirement nest egg. The LTC rider can help pay for costly care like assisted living or nursing aides at home.
Life Insurance Can Provide Accelerated Death Benefits
Most life insurance policies will extend accelerated death benefits to you if you are diagnosed with a terminal illness or a severe medical condition. Under these conditions, in many cases, life insurance policyholders can get up to 80 percent of their death benefits to pay their medical bills, to take a vacation in order to convalesce or use the amount any way they would like. Ask your agent about accelerated death benefits before purchasing a life insurance policy. They can be automatically included in your policy or attached as a rider.
Go over your insurance policy today to see how yours can do more for you. If you don't have a life insurance policy, check out aggregator websites that offer free life insurance quotes. Talk to an unbiased life insurance professional to see how you can get the most out of your policy.
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