By practicing proper money management and acquiring final expense life insurance, you can alleviate your beneficiaries from financial challenges.
No matter how cautious you are, unexpected occurrences will still happen. Thus, it's indispensable to plan and be equipped so you can resolve undesirable circumstances effectively.
One foolproof way to be prepared with life's misgivings is by acquiring life insurance. This financial contract is an agreement made between the holder of insurance policy and the insurer, in which the latter officially promises to extend a sum of money to the designated beneficiary in reciprocity of a premium, upon the insured person's death.
Let's be honest—pre-planning end-of-life matters are odd and daunting, but unless you know where to find the fountain of youth, the only productive thing you can do about death is to prepare for it properly. Moreover, according to Forbes, for every individual who has someone relying on him or her financially, life insurance is a must.
Below, we'll explore several key points everyone must know about life insurance's coverage for living and death benefits, as well as some tips on maximizing your protection as a strategic financial tool. But, before we jump into the details, let's briefly tackle its importance.
Life Insurance 101
Purchasing life insurance is practically obligatory for individuals who have children, a spouse, or any other people who are dependent on them for monetary needs. If someone is likely to suffer financially after your death, that's the primary motivation for you to get life insurance.
Moreover, this contract doesn't just apply value to your life but serves as compensation for unavoidable consequences that come with your death. These include outstanding debts and financial responsibilities, final healthcare fees, burial expenses, and lost income. Therefore, life insurance is not an investment, but one of your money management tactics for maneuvering against future risks.
Must-Know About Life Insurance
As stated previously, life insurance can be utilized as an efficient financial and risk management tool, especially if you exert an effort to make the most out of your policies. With that, here are some important considerations to take into account.
- One-time Lump Sum vs Series of Payment
A death benefit is a guaranteed tax-free payout to the listed beneficiary on a pension, life insurance policy, or annuity, upon the death of the policyholder or annuitant.
Accordingly, you have the option on how you want the payment to be received by your beneficiary, which can either be a one-time lump sum or a series of ongoing disbursements. This may seem trivial, but it can actually be helpful to choose an insurance plan that is suitable to the needs of your beneficiary.
For example, a series of payments can be a convenient arrangement in case you're leaving unsettled mortgages because your beneficiary can automatically set aside a monthly amount for repayment, provided that he or she chooses to keep the house.
If you are financially savvy and not likely to leave unsettled debts, a one-lump sum can be used by your beneficiary for other types of financing. You may consult with your recipient regarding this matter to make the optimal choice.
- Benefit Proceeds are Not Stipulated
With final expense life insurance, your beneficiary will get an amount that can be used to cover death-related expenses like burial or cremation. However, it's vital to note that there are no limits on how your beneficiary can spend it. Thus, it can also be used for ventures other than end-of-life costs.
If you don't have outstanding debts, your family can use a percentage of the money to finance trips or other undertakings, which is rather a good gift to leave behind.
However, if you are keen on having it used for end-of-life expenses, given that you have unique, costly requests on your memorial service or funeral arrangements, you can have your demands documented and legally recognized. Alternatively, you can simply inform your beneficiary of your final requests.
- Access Funds While You're Living
Your beneficiary is not the only one who can receive funds from your life insurance. According to Melissa Horton of Investopedia, if you opt for a permanent life insurance plan, you can benefit from its cash value savings component. The cash value pertains to any amount that's left of your premium payments after the insurance cost and accompanying fees are deducted.
This sum is available to you while you are alive, and you can use this to access cash. Moreover, cash value grows tax-deferred and can be withdrawn as a policy loan completely tax-free. However, do discuss your plans with your insurance carrier first, because withdrawing too much can lead to lapsing of the policy.
- Life Insurance Coverage is Customizable
Living benefits riders are optional pieces of coverage which can be added to a new life insurance plan with a provider or existing policies. By availing of riders, you can have some add-ons to your life insurance to tailor-fit your plan to meet your specific needs. Accordingly, living benefits riders are accessible while you’re living. But do take note that acquiring riders or exercising their use may come with additional fees.
The purpose of these add-ons is to enable the policyholder to utilize his or her benefits early as necessary. For instance, sustaining severe injury or being diagnosed with a terminal illness can largely affect one's ability to generate an income. Thus, being allowed to access benefits before death helps offset this dilemma.
Check with your insurance company to be informed of any applicable restrictions or requirements of proof.
The Bottom Line
Life insurance matters are not black and white. There are multiple in-between factors that you must consider in order to utilize your insurance plan fully. Moreover, it's essential to consult an expert from your insurance company so you will be aware of your options and can be guided in your decision-making.