According to Patterson PC (www.petepattersonlaw.com), one of the most important yet often overlooked aspects of personal financial planning is the purchase of a life insurance cover. When you buy a life insurance policy, you agree to pay a certain amount of money every month in exchange for a lump sum pay-off within a pre-determined period of time or after your death. This lump-sum payment is given to specific beneficiaries, usually family members, close friends or charitable organizations. There are generally two types of insurance policies, term life and whole life. With term life policies, benefits will be not be paid if you outlive the time stated in your policy. Whole life policies do not have this condition and are paid out after your death.
Even as life insurance premiums continue to steadily decline, some people still neglect to purchase these policies believing that they have no need for them or that they cannot afford them. Life insurance policies do more than provide a financial cushion for those family members left behind after the demise of their loved one.
Cater For Immediate and Long-Term Expenses
When a loved one suddenly dies, his or her dependents are left reeling in shock and grief. They are often quickly overwhelmed by the many decisions about funeral planning that have to be made immediately. Funeral home expenses, cremations and funeral services alone may cost a few thousand dollars. They may also be in charge of looking for custom memorials for their loved ones.
If the deceased was temporarily hospitalized before their death, family members may have to pay medical bills as well. Sometimes, civil or criminal litigation after the death of a loved one may be necessary if the cause of death was due to negligence of a third party. Many families are forced to take high-interest loans to keep up with medical and funeral expenses that their health insurance policies will not cover. A life insurance policy can help with both immediate and long-term expenses. This not only gives you peace of mind, but allows you to slowly begin the process of rebuilding your lives in the absence of your loved one.
Protect Family Assets
Dependents of a deceased individual may suffer from loss of household income. This may result in an increased debt obligation leading to falling behind on auto and mortgage payments, repossession of family assets and a diminished quality of life. Your surviving relatives may have to sell or auction off valuables and family heirlooms whose sentimental value far outweighs their monetary equivalent. Having life insurance keeps your family’s valuables intact so that they may be enjoyed by your family’s future generations.
Increase Your Credit Score
Life insurance is considered a financial instrument and shows positively on your credit score provided you make timely payments and do not default on the policy. A good credit score makes it easier to secure a job, acquire a mortgage, car payment and other forms of borrowing.
Source of Short Term Loans
If you are temporarily in need of cash, your whole life insurance policy contains provisions where you can borrow against the accumulated cash value of payments as long as the premiums are up to date. These loans typically have a lower interest rate and do not require a credit check to qualify. Any interest is added on to your existing principal balance allowing you to pay back the loan over time.
A life insurance policy is perhaps one of the best ways to hedge your family and loved ones against the uncertainties that life throws your way. A qualified personal finance advisor can provide guidance on the kind of life insurance policy you should buy as well as the associated premiums, benefits and tax implications.
