This shaky economy is encouraging consumers to take a second look at the coverage.
For the last several years, the popularity of life insurance has been shrinking, reaching the lowest points that it has seen in decades, but with the state of the current economy, financial planners are beginning to turn their gaze back toward this coverage product and the security that it can offer.
Though the policies should not be considered an investment, they do offer planning flexibility.
To start, it should be understood that in the majority of life insurance cases, any death benefits that are paid from the policy are tax free for the beneficiary. There are a small number of exceptions to this rule, but on the whole, the money paid out is not taxed. For this reason, it is often seen as highly appealing, as it can form a kind of fund for an individual who has a very tight budget but a significant need. Moreover, it is often seen as appealing from an estate planning point of view.
The key to using life insurance properly is to understand the difference between its two types.
The first is term life insurance and the second is permanent. Term coverage can be thought of in the same way as an auto policy, in that a certain premium is paid in order to maintain coverage for a specific length of time. Should a covered event occur during that time, a payment is made to the beneficiary. At the end of that time, the insurance comes to an end and no refund is provided.
Also similar to auto coverage is the way that the premiums for term life insurance will rise as the risk of a covered event becomes greater. As death is more likely for an individual at an older age, when coverage is purchased by the young, it is much less expensive. After a certain age, this type of policy is no longer available, as an individual can only live for so long.
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On the other hand, permanent life insurance is the form of the coverage that never runs out. This means that the policyholder must continue to make premiums payments. This premium is evened out from the start, based on three factors that are combined into the calculation. These are: operating expenses, investment income, and mortality rate.
The carrier uses these factors to calculate how much it will need to collect through life insurance premiums in order to be able to be able to afford the death benefit that will need to be paid out at a predicted time. Though some people will live longer than others, the premium is based on carefully generated averages.
Without any faith in the markets at the moment, the appeal to use life insurance to protect oneself and one’s family has grown once more and has placed the sector back on the map.