The circle of life has been designed by a divine hand and at some point, it indicates that our paths have to cross over to the next spiritual realm as our souls have transcended this world. What happens to our loved ones once we pass on? It is a natural worry, especially if you are the primary bread earner in your household. This also implies that you probably have given a lot of thought of how to cover expenses after your retirement as well as once you move on. Just a little tip: your financial planning is not complete if you have not factored in the cost and benefits of owning a life insurance policy
Given that statement, how about you test your general knowledge and check if you know the following seven characteristics of life insurance? Okay, we are only teasing as we are more than happy to share the following information which was provided by this life insurance attorney in Houston .
It is an Agreement
You may have heard this countless times and allow us to confirm it: a life insurance policy is actually a contract between an entity (someone who has a personal stake in the fiscal livelihood of someone) and an insurance service provider. The former submits a monthly payment to the insurance company that grows over time. Once the person in question passes away, the service provider makes a lump sum payment to the assigned beneficiary. This is called a death benefit. The latter earns a profit from the variation by raking in premiums and the amount paid out.
Your Family Needs It
If only we could remain single for our whole lives! We are only kidding as we believe in the beauty of companionship and family. Life insurance will be the best gift you can leave your partner and children behind upon your passing. Not only that, you may need it regardless if you are a child of parents who depend on you financially, the brother or sister of a dependent sibling, an employee, a business partner or someone’s ex-spouse. However, if you are one of the lucky ones who has not only set himself but yet his family or dependent ones too for life-then life insurance may not be as obligatory a tool. Of course, you could always invest in it for future saving purposes.
Alleviate Your Risk
Yes, it is true that certain categories of life insurance plans come with a tax benefit. However, there are more effective methodologies that could assist you in achieving the percentage of tax alleviation that you are aiming for. Strive to maintain some level of liquidity with cash, you never know when an unanticipated emergency may arise. If you have ensured that your dependent children have funds for college, paid of all debts, arranged for your mortgage needs and put away money for any high-level purchase decisions in the future, then you are good to go. You will not require life insurance policies that consist of an investment trait.
Four Actors Exist
There are four principal stakeholders in the world of life insurance: primarily the policyholder, the policy provider, the beneficiary and the insured entity. The insured entity is the one who’s name you are taking out the policy on (whose life is insured). The policyholder is accountable for submitting monthly premium payments to the policy provider. The latter (policy provider) plays the role of the bank in this scenario as he releases a payment upon the death of the insured entity. It is given to the beneficiary: this can be an individual or an entity (such as a trust) who will receive the funds.
Life is Priceless
One important thing you must know is that life insurance does not assign a price tag on someone’s life. It is meant to be an instrument of relief and lower any economical dilemmas that may come up upon the passing of a family member. It can facilitate funeral expenses, medical bills and any other forms of debt. If you are a grieving member of the family, you will already be facing an emotional rollercoaster at the loss of life. Knowing that you do not have to worry about financial issues such as rent, mortgage payments, college tuition fees and such will help lift the burden a little.
Prices May Vary
A lot of people are under the impression that all forms of life insurance are expensive. Did you know that depending on your requirements and final choice, you can select where to operate on the payment spectrum? A simple, straightforward life insurance policy has reasonable premiums that may not make a huge dent in your wallet. For instance, a healthy 25-year-old man who doesn’t smoke could dish out an annual payment of less than €500 on a twenty-year policy that could pay out up to a million euros. However, that very same person, if unhealthy and a consumer of tobacco, could have to pay up to ten times that amount in his monthly premiums.
Two Types Exist
Do you know how many types of life insurance policies are available? There are two general classifications: term and permanent. Term life insurance is the simplest and cheapest alternative you will find in the market. Under this, the life insurance firm assumes that the person will pass away in an estimated time frame (can range up to thirty years) and premiums are submitted on a monthly basis till the policy expires or the insured passes away. The latter (permanent life insurance) gives out protection over an entire lifetime of an individual. It allows you to gather and save money with tax advantages. This kind of policy does not expire and will remain valid as long as the premiums keep coming in to the firm’s pocket. It possesses a cash surrender characteristic as you are building up a pool of cash that will be your asset only. It is not a loan, but your own personal money. There will be no credit check required nor any interest rate to be fulfilled.