Jay Mychalkiw
One of the most marketed types of financial support is that of life insurance. Every day millions of advertising dollars are spent on promoting this type of help, and it’s one of the most important elements that you can purchase today. Everyone can benefit from having life insurance, and yet many aren’t 100% sure what it can do, or why it’s imperative to pick out.
At first glance, the notion of life insurance speaks to the end of life. People don’t want to read through the complexity of contracts, or think about dying in any way. With an educated look at what this is, how it works, and why it is important, however, you can understand why it’s so important to have this insurance in place.
Whether you’re young, old, or somewhere in between, take into consideration the following points associated with life insurance. This will help you understand so much about this often-misunderstood financial pillar.
Life Insurance Is for the Living
The first thing that you need to know is simple, this type of policy is for those that are left behind. When someone passes, family members are left with more than just sadness. They are left with financial responsibilities, and hardships that cost money to sew up. If you have a large sum of money to leave behind your family, children, and others, then perhaps a policy isn’t right. But if you don’t have a large sum, then for a small price, you can receive peace of mind if you have loved ones that need help with support after death.
Life Insurance Is Not Just a Financial Contract
People often assume that contracts of this type are putting value to life and death. That’s not true. This is something that is meant to help with financial issues after death, not during a lifespan. The aftermath of someone dying involves a great deal of money issues. Funeral costs, debt payments, and so much more needs to get addressed, often with collections coming through. With life insurance, peace of mind is settled, and you can ensure that family members can move forward without fear of financial struggles. This is not about money, it’s about easing the burden of the living, mourning for the loss of a loved one. It’s about peace of mind, more than putting value on life.
Life Insurance Is a Guaranteed Solution
When you put money into a bank account, you will have it guaranteed up to a certain amount. In the United States, this is known as the FDIC insurance. Upwards of 100,000 dollars can be saved up without worry of losing it. This was set up after the Stock Market Crash that caused serious panic at the end of the 1920s. Since then, the FDIC option has given people peace of mind with their savings. However, anything more than that, and things become murky. Life insurance is a guaranteed pay-out, a contract, that can help in the same way that the FDIC option helps people saving money in bank accounts. The policy one opens will cost a small fee a month, and that guarantees a full payment to the benefactor upon the death of an individual. It’s guaranteed.
Understanding the Four Pillars of Life Insurance Policies
As you read through any life insurance policy, you will see that there are four major pillars found within a policy. These four pillars stand for individuals. There includes the insurance company (insurer), the owner of the policy, the insured, and of course the benefactor. Each one of these have a specific role. For instance, the insurance company is named insurer, the owner of the policy is the individual that pays the premium, the insured is the person that is named in the policy, and the benefactor is the person or people that will receive money when the insured passes away. One can become the owner, and insured, but not the benefactor, which clarifies the positions moving forward.
Life Insurance Policies Are Not the Same As Retirement Plans
People assume that a retirement plan or a 401K plan that they build through their life is the same as getting a life insurance policy. It may feel that way at times, but it’s different overall. Life insurance is not an investment, but rather something to manage risk down the line. Insurance may seem like it’s investing in the future, but honestly, it is hedging risk in case something happens to someone. Life insurance policies can be paid in terms of 10 years to 30 years, for instance, and someone may live through all the years. However, someone may also get a policy and die within the span of 5 years, and the pay-out is the same. Investing takes a long time, and toil, which is different than insurance.
Life Insurance Comes in Two Major Forms
There are a couple of options that you are going to see with the purchase of life insurance. The first solution is the most common, and it’s called term life insurance. This is a policy that has a set amount of time that you will pay a premium. If you die before the set time frame, you will get paid out the policy’s guarantee, but if you outlive the policy, you have to purchase a new one. Term insurance plans come in factors of 10, 20, and 30 years.
The next major type is simple, permanent life insurance. This means that there is no end date for paying the policy. Unlike term insurance plans, you pay a premium until death, and that’s it. In some instances, this option could come with a savings element so that you can use some of the money you’ve saved or invested outside of the policy, for daily life. This can be isolated within the confines of “whole” life insurance.
Some Life Insurance Plans Mix Policy with Investment Solutions
Up to this point, it has been stated that investment and insurance are not the same. But there are some policies that can help you mix the two. This is usually considered within the confines of Universal life. Universal life is an interesting solution that gives you a policy outright, but also gives you an investment platform associated with your investment. You can use some of the money you invest in premiums, to gain interest over time. There are several complicated factors that lean into this, but it’s something that some people want to invest in over time, as it’s not term life.
Conversations About Life and Death Are Necessary
At the end of the day, no one really wants to discuss their death or the death of others. Life is so grand, and worth living, but life insurance is not to be forgotten. Communication is an important thing, and talking about the future, which is inevitable, can help with understanding why insurance could help loved ones, as well as ease the stress of tomorrow. It’s worth talking about, even if it’s a bit irksome.
