Life insurance is a contract between an insured or insurance policyholder (usually an individual) and an insurer (a company), where the insurer promises to pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon the death of an insured person. The policyholder or insured typically pays a premium, either regularly or as one lump sum. Other expenses, such as funeral expenses, can also be included in the benefits if you don’t have a separate Final Expense policy.
The average person does not have thousands of dollars saved while they are living nor upon their death. With this being the case, ask yourself, “Upon my death, how will my funeral or service be paid and what will I leave to my loved ones?” At the same time, remember that if you do have assets, creditors have priority over your beneficiaries in order to recoup their losses, including but not limited to medical bills, funeral expenses, lawsuits and nursing home costs.
In such a case, life insurance is a great tool to have since it allows for you to leave your loved ones a large sum of money upon your passing. This is especially important if you have minor children who you want to go to college with minimum financial burdens, help with purchasing a home or even starting a business. Life insurance also relieves your spouse from being overwhelmed with household expenses, especially if you are accustomed to a 2 person income.
If you have minor children and you leave them money from a life insurance policy, it is a good idea to create a Life Insurance Trust so you can stipulate when your child or children can get the money and for what purpose. Otherwise, they get it all immediately through a guardian who is appointed by the Probate Court Judge.
A life insurance professional can guide you as to whether you should have a term or whole life policy depending on your circumstances. However, regardless of what type of policy you choose, remember that the older you get, the more expensive the premiums will cost you.
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