The Risks of Not Having Life Insurance
Life insurance products were created to protect families from financial hardship in the event of the death of the primary earner. The amount of money that is paid to the beneficiary of the policy is known as the death benefit. One risk of not having life insurance is not having a death benefit that would cover the family's living expenses.
Different Types of People
People in any of the following categories should ensure that the life insurance policy they have in force is sufficient to cover the needs of those left behind:
Married people: The surviving member of a married couple, even one without children, risks not having the resources available to pay bills such as a mortgage, credit card debt or student loans. If the couple has children, the policy owner should also consider a death benefit that would cover college tuition.
Single parents: Single parents, especially women, need to make sure that their dependent children will have the financial resources necessary to maintain their standard of living.
The risks of not having life insurance also extend to a person who is financially responsible for a parent or dependent sibling. A life insurance policy with a parent or sibling as the beneficiary will help to make sure that their standard of living does not decrease with the death of the caregiver.
While it's an unpleasant topic, parents of young children with few assets may also consider that the risk of not having a life insurance policy on the child can create a financial burden in the event of his or her death. A "juvenile" life insurance policy can cover both funeral expenses and medical expenses should death occur as a result of illness or injury.
The Risks of Not Having Term Life Insurance
Term life insurance policies are inexpensive and uncomplicated. The risks of not having at least a term life insurance policy are often great. Even a term policy that is in force for as few as five years can provide the protection a family needs. The size of the monthly premium is always based on the sex, age and health status of the applicant. The length of the term in years and amount of the death benefit in dollars will also be factors in determining the amount of the premium.
Because term life insurance is inexpensive, it is best suited for young families who don't have a lot of extra cash each month. Term policies can be bought with death benefit amounts of between $2,500 and $2,000,000. While the details of the policy will differ among the different life insurance companies, the death benefit paid to the beneficiary can be used in any way he or she sees fit.
Term life insurance can also be a good choice for a senior in his or her fifties, sixties or seventies. A grandparent who wishes to leave money for a grandchild’s college tuition, or one who wants to provide enough cash to cover inheritance or estate taxes may also consider term insurance.
There are those who consider the money spent on term life insurance premiums a waste of assets if they survive the term. These people should, however, carefully weigh the risks of not having life insurance and the amount spent on the premiums. There are a number of options for these people to consider when choosing term life insurance, such as return on premium and cost of living adjustment policies.
Unlike permanent insurance, term insurance becomes more expensive to renew each year the policyholder gets older. Therefore, he or she should consider converting his or her term policy to a permanent policy. Most life insurance companies will allow term policy owners to convert their policies in order to get coverage for life.
The Risks of Not Having Life Insurance that is Permanent
A permanent life insurance policy ends when the policy owner either surrenders the policy for the cash value or when he or she dies. Permanent life insurance policies are underwritten in a variety of ways. The most popular type of policy is called whole life. Permanent insurance policies have an investment feature that builds cash value over the life of the policy. The insurance company invests some of the premium. The premium can be paid in installments or as a single payment.
Permanent life insurance is part investment product and part insurance product. Because of the investment component, it is also sometimes used to build retirement savings. Permanent insurance savings grow tax-deferred and have very advantageous federal and state tax laws, which combine to create an additional way for retirement investors to save for the future. And, as so many Americans are living longer today, the risk of not having life insurance may mean a retiree will outlive his or her savings.
Permanent life insurance policies are typically better suited for those who are older and better able to make the monetary commitment to the insurance policy. It is also imperative for investors to realize that permanent life insurance demands a financial commitment that term insurance does not. If the premiums are not paid on a term policy, the coverage ends. If the premiums are not paid on a permanent policy, the policyholder could lose a major portion of his or her account. When permanent policies are cancelled early, the owner is subject to surrender fees.
The Risks of Not Having Life Insurance for Estate Planning
The risk of not having life insurance when it comes to estate planning is not just a risk that wealthy people face. Because death benefits are normally paid tax-free, life insurance is beneficial for those beneficiaries who will be hit with even a modest state or federal inheritance tax bill. The insurance policy, however, must be established properly. The death benefit must be paid directly to the beneficiary or beneficiaries so that it is not included as part of the estate. If the death benefit is part of the estate, it will be subject to probate along with all other estate assets.
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