Life insurance covers the costs associated with death, including funeral and burial expenses, medical bills, debts, estate taxes, and potential legal fees. In addition to providing a financial legacy for your family, it can also replace lost income.
When purchasing life insurance, you must consider the coverage you need and your budget. Here are some things you should consider when choosing this type of coverage.
What Are Average Life Insurance Payouts?
It’s common to get about $168,000 from a life insurance policy. However, receiving far more than the average life insurance payout is possible by getting a policy with a death benefit seven to ten times your yearly pay. This payout would be $420,000 to $600,000 if your annual income were $60,000.
This amount can be distributed in a number of ways. Here, for example, are three possible options.
- The vast majority of beneficiaries receive their death benefits in a lump amount. Your insurance company will either make a wire transfer to a bank account or a cheque for the entire amount to the person you’ve designated as beneficiary.
- Your death benefit could also be invested in your chosen financial vehicle if you choose the annuity payout option. With this option, you’ll receive a percentage of the benefits and interest until the fund runs out.
- Yet another alternative is that your family gets the life insurance payout in installments. These payouts accumulate interest in retained asset accounts.
The Basic Types of Life Insurance
Here’s a quick overview of some of the most common types of life insurance in the marketplace.
The whole life insurance policy provides guaranteed death benefits. It is the original life insurance policy that has been around for centuries. It provides coverage for your entire life if you continue to pay your premiums.
Your premium payments are invested into the policy, and the cash value of the policy grows over time. This cash value can be borrowed against or withdrawn, subject to certain conditions. It also offers the potential for dividends, which can increase the death benefit and cash value of the policy.
In comparison, term life insurance protects the policyholder for a set period of time, typically 10-30 years. It is the beneficiary’s responsibility to receive the death benefit should the policyholder die during the policy’s term. If the policyholder outlives the term, then the policy will expire, and benefits will not be paid.
Universal life offers flexibility in premiums and cash value accumulation, while variable life provides potential financial gains. Universal life will give policyholders more control over their premiums and build cash value over time.
In comparison, variable life will work for someone comfortable with fluctuating premiums and is interested in the potential for greater financial rewards.
Things to Evaluate When Buying Life Insurance
If you want to purchase an insurance policy, understand what it covers, what types of coverage are available, and how much you will need.
You can also buy life insurance with a pre-existing ailment, but your premiums and interest rate will be higher.
When considering a policy, compare those from different companies. Look for features like the return of premiums, cash value accumulation, and coverage for accidental death and disability that fit into your budget.
Review your life insurance plan periodically to see if it still meets your needs.
Think of This Insurance as a Financial Legacy
After you pass away, life insurance can be a valuable source of comfort for your loved ones. It can help replace lost income, pay off debts, and provide a financial legacy to those left behind. Knowing the basics of life insurance will give you peace of mind because if something were to happen to you, you could still provide for your family financially.