Most of us get concerned about our personal finances at some point. Having a financially stable situation is a long-term objective for many people. Precisely because of this, financial planning is a crucial activity that should be a part of your life. However, financial planning can be a bit too complex and even daunting.
That’s why important factors like life insurance are often ignored in many households. Still, life insurance is and needs to be not just strongly considered but also be an integral element in your financial plan. The main purpose behind this is that life insurance provides different benefits aside from just securing your finances in a case where something goes terribly wrong.
With that in mind, let’s see why life insurance should be a part of your financial planning.
It helps you work towards your long-term financial objectives
The majority of our life tends to revolve around achieving different financial milestones. For instance, paying off a college loan, purchasing a car or house, putting your children through college, and saving up for a healthy, joyful retirement. Besides these common objectives, there are various financial milestones that need careful planning and preparation in order to one day become a reality. Acquiring a life insurance policy that has adequate coverage and sum can help you reach different financial goals throughout your life, as you can opt between various insurance plans and build your optimal combination of coverage and payments. By having a life insurance plan, you are effectively securing your finances for the future, all for the sake of being solvent tomorrow.
Life insurance lets you dictate the type and range of protection
Life insurance, payable in the case of death, can provide a surviving spouse, children, or other dependents the funds needed to help maintain their standards of living. It can also repay debt and help fund educational costs. The amount you will need will heavily depend on the circumstance you’re in. If you make over $100,000 yearly, have a sizeable mortgage, and two children headed to a nice (read: costly) college, you could require as much as $1 million in coverage. Universal or value-accumulating whole life insurance is usually offered as death benefit protection with a cash value component that you can borrow against or eventually cash in by surrendering the policy. Term insurance costs less but may remain in effect only for a particular term of years.
It provides security for your family
Having a backup financial plan is one of the major concerns for many of us. The grim reality is that we can never know with certainty whether something bad is going to occur. That’s why people often decide to go with permanent life insurance. The main purpose behind it is that people want to ensure financial protection for their loved ones in case something unfortunate actually happens. That is why policies such as term life insurance are typically sought out by many individuals. The main benefit of such insurance policies is that policyholders can release the financial assets to families in a way that suits those families best. For instance, assets can be released in sum payments, monthly or even yearly installments, etc. These assets can enhance financial security for the beneficiary’s families or help them make further wise investments.
It is an excellent tool for investing and saving
The core of every sound financial plan has two elements – saving and investing the money. Life insurance can act as a perfect tool for both of these activities. Not only that you’re going to build long-term financial stability, but you will have a variable resource for any plan B. For example, in the future, you might not be able to work as much as you do now, but you might want to invest. Thankfully, with this option, you will have resources for that. Over time, your life insurance policy will expand and you will obtain more benefits and bonuses which can positively affect your investing choices.
Tax benefits
For many countries around the globe, including the U.S., one of the major benefits of a permanent life insurance plan is that the accrued assets are tax-exempt until the policyholder withdraws the cash from the account. Although the same benefit exists in other retirement and savings plans, permanent life insurance enables you to invest any amount you desire. This is particularly advantageous for individuals who wish to invest beyond the maximum amount allowed by traditional retirement methods. Even more, the policyholder has the right to transfer the death benefit of the policy in question to their beneficiaries tax-free.
Although it doesn’t look like a principal consideration at first, life insurance has a crucial role in your long-term financial plan. As a matter of fact, selecting the right kind of policy and coverage amount can have a significant impact on your financial objectives, and the methods by which you can accomplish them.