CHICAGO, Nov 24, 2021 (GLOBE NEWSWIRE) – When people are young and healthy, getting life insurance may seem unnecessary. But as people get older and assume more responsibility, the need to support others financially can grow significantly. And choosing the right life insurance for the policyholder and their loved ones can alleviate that burden. For anyone considering whether or not to get life insurance, here is why life insurance is important and what makes it a crucial part of a solid financial strategy.

How does life insurance work?

Life insurance is a contract between a person (the policyholder) and an insurance company (the insurer). The contract stipulates that the policyholder pays a monthly premium in exchange for a guaranteed death benefit. And if the policyholder dies during the term of the policy, that death benefit is paid out to the beneficiaries.

Two common life insurance plans are Term Life and Whole Life:

  • Term life insurance is the simplest type of life insurance. A policyholder buys a policy for a term, often between 10 and 30 years. If they pass during this time, the insurer undertakes to pay the assigned beneficiaries a death benefit. Contract insurance is often used when people are in situations where they only need coverage for a limited period of time. For example, parents with young children can take out a 20 year insurance policy, knowing that when the policy is terminated, the children will grow up and may no longer need the financial security it offers.
  • Life insurance is a type of permanent life insurance, ie the policyholder is valid for the entire lifetime of the policyholder, provided that the latter continues to pay premiums. A life insurance policy commits itself to providing a death benefit if the insured dies, but it also allows the policy to accumulate a cash value. That means some people see it as a double life insurance and investment account.

Why is life insurance important?

Regardless of what type of life insurance someone has, there are several reasons why life insurance is important.

Replace lost income

For someone who is the main breadwinner of the house, the loss of life could have devastating financial repercussions for the remaining family. But life insurance can be supportive. Since the general recommendation for a life insurance policy for life insurance is seven to ten times the policyholder’s salary, the right plan could bring loved ones close to an annual income. And that means less stress of having to figure out what to do next.

Help with debt settlement

Whether the debt belongs to family members or was left behind by the deceased, life insurance can be used to cover remaining debts such as a business loan or a mortgage. However, the policyholder must buy a policy large enough to cover the outstanding debt in order to get the best outcome for their family.

Include a non-taxable inheritance

Much of what people leave behind as part of their estate is taxed by the government. But the payout from a life insurance policy is tax-free. This means that the beneficiaries receive more money dollar for dollar than from other taxable accounts.

The bottom line

Life insurance is intended to provide financial security for relatives if the policyholder dies during the period of validity. And finding the right plan can give you peace of mind that loved ones can replace lost income, repay debts, or receive a tax-free inheritance. Knowing that loved ones are covered by the right insurance is an important step that can set the policyholder free to pursue other financial goals.

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