Life insurance is a contract that provides payment of an agreed upon amount by an insurance company to named beneficiaries upon the death of the maker of the contract. It is one of the most important aspects of personal finance and has a direct impact on estate planning. The following are things you should know about life insurance:
1) If you have others that rely on you financially, you should seriously consider life insurance.
2) Life insurance is typically utilized as a tool to manage risk, not as an investment.
3) Term life is a type of life insurance that provides coverage for specific period of time. During this period, the premiums are set. If the maker of this policy dies within the term, the agreed upon amount is paid to his or her beneficiaries. It is the least expensive and most widely applicable type of life insurance.
4) Permanent life remains as long as the premium is paid by the maker. It contains a cash value component and may be classified as whole life; variable life and universal life. These policies tend be more expensive than term and more complex.
5) A simple but effective way of deciding how much life insurance is needed can be calculated by multiplying the worker’s yearly income by 15. The policy should extend at least until that individual is expected to retire. This method is not necessarily appropriate for all situations, but can utilized as a starting point for one’s consideration.
Life insurance is an important component of individual financial planning as well as estate planning. As one’s testamentary documents make sure your assets are distributed to your loved ones in accordance with your wishes, life insurance can provide much needed funds to help sustain your family after your passing. Contact an attorney at Paulson & Paulson, PLC today to further discuss how life insurance can be utilized in your estate plan.