5 Advantages of Life Insurance

Life insurance can be essential for protecting your family financially in case of a tragedy, but many people go without it. In fact, nearly half of American adults do not have life insurance at all. One reason is that people assume life insurance is too expensive. For example, when asked to estimate the cost of a $250,000 term life policy for a healthy 30-year-old, the majority of survey respondents guessed $500 per year or more. In actuality, the average cost is closer to $160 a year.

Despite all of the fallacies about life insurance it provides a number of useful benefits. Among them:

1. Life Insurance Payouts Are Tax-Free

If you have a life insurance policy and die while your coverage is in effect, your beneficiaries will receive a lump sum death benefit. Life insurance payouts aren’t considered income for tax purposes, and your beneficiaries don’t have to report the money when they file their tax returns.

2. Your Dependents Won’t Have to Worry About Living Costs

Many experts recommend having life insurance that's equal to seven to 10 times your annual income. If you have a policy (or policies) of that size, the people who depend on your income shouldn't have to worry about their living expenses or other major costs. For example, your insurance policy could cover the cost of your children's college education, and they won’t need to take out student loans. 

3. Life Insurance Can Cover Final Expenses

The national median cost of a funeral that included a viewing and a burial was $7,640 as of 2019. Since many Americans do not have enough savings to cover even a $400 emergency expense, having to pay for a funeral can be a substantial financial burden. If you have a life insurance policy, your beneficiaries can use the money to pay for your burial expenses without having to dip into their own savings or use credit. 

Some insurers offer final expense policies. These policies have low coverage amounts and relatively inexpensive monthly premiums. However, if you are healthy you can find other coverage for less money. 

4. You Can Get Coverage for Chronic and Terminal Illnesses

Many life insurance companies offer endorsements, also known as riders, that you can add to your policy to enhance or adjust your coverage. An accelerated benefits rider allows you to access some or all of your death benefit in certain circumstances. Under some policies, for example, if you are diagnosed with a terminal illness and are expected to live less than 12 months, you can use your death benefit while you’re still living to pay for your care or other expenses. Be aware that in some cases those proceeds can be deducted from the death benefit though.

5. Policies Can Supplement Your Retirement Savings

If you purchase a whole, universal, or variable life insurance policy, it can accumulate cash value in addition to providing death benefits. As the cash value builds up over time, you can use it to pay expenses, such as buying a car or making a down payment on a home. You can also tap into it if you need to during your retirement years.

However, a life insurance policy should not replace traditional retirement accounts like a 401(k) or an IRA. What's more, cash value life insurance is considerably more expensive than term life insurance, which has no savings component but simply a death benefit. 

Life insurance isn’t just for the wealthy. No matter your income level, life insurance can ensure that your loved ones could make ends meet if you were to pass away. And life insurance might be more affordable than you think. 

If you need help or have questions about life insurance let us know. 

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog! 

4 Questions About Funeral Planning

Those of us who sell life insurance often talk about how a policy can benefit loved ones following the loss of a family member. If a policy is structured correctly to cover any outstanding debts, such as a mortgage or other loans, as well as replacing lost income and funding education needs if children are involved, that coverage should work well in the long run. 

However, the family will need those funds in the short run as well. First and foremost, funeral expenses will need to be taken care of as quick decisions are made by a grieving family. In a perfect world, we would all have pre-planned our funerals. Picking out a casket, having burial plots put aside and other decisions can best be figured out ahead of time when people are rational. 

This is why it's important to for your life insurance agent to include final expenses into the conversation. A traditional funeral can be expensive, averaging between $10,000 and $13,000, depending on where you are. To help you plan and save your family a lot of stress, I've come up with a few frequently asked questions about funerals and final expenses. 

1. How can my life insurance pay for the funeral?

If you have named a family member, let's assume a spouse, to be your beneficiary, they can "assign" a portion of the proceeds to pay for the funeral. The funeral home typically will have paperwork on hand for this so that the insurance carrier can pay them their fees directly. 

Keep in mind that the beneficiaries need to be up-to-date. In the case of my father, who had not updated his policies in years, all of his beneficiaries has pre-deceased him. As a result, my sister and I had to pay the funeral home and the policy paid the death benefit to his estate, which took months to settle. 

2. Does pre-planning a funeral save money?

Not necessarily. While choosing your items may help a bit, unless you pre-pay, the prices can go up. Using my father as an example again, he pre-planned his funeral but didn't pay for anything. When he died years later, inflation had an effect and the prices were a bit higher. 

I met a lady years ago who owned a local cemetery. I'm not sure if she was trying to get me to buy a plot but she said that inflation on burial plots were higher than regular inflation. If you are planning on being buried, you should probably choose the plot and pay for it ahead of time if you can.

3. Can I buy my casket online or do I have to get it from the funeral home?

You can purchase your casket and other supplies online. The funeral home can handle the embalming, host the viewing and coordinate other details. Be aware that they would prefer you buy from them as they have a lot of overhead and they markup their caskets and vaults accordingly. 

Under the FTC Rule, you are allowed to purchase supplies from a third-party vendor and the funeral home is required to accept them. 

4. What if I just want to be cremated?

That shouldn't be a problem. Many people have chosen this option as it is less expensive than purchasing a burial plot. Again, the best advice is to discuss this when pre-planning. 

The director of a cemetery told me once that the biggest issue he dealt with was that when people made plans for cremation, they often failed to inform their loved ones. Family members would expect to visit a plot that wasn't there. "They were expecting a place to stand together and grieve, but when they realized there wasn't one they would get very upset," he said. "I just wish they would tell their family ahead of time."

When discussing your life insurance with your agent, be sure to include your funeral and other plans into the talk. In the meantime, stay healthy!

 

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!