Do You Need Life Insurance?

Life Insurance is a contract between an insured (person or entity) and an insurer/assurer that promises to pay a specified beneficiary a sum of money upon death. The contract may also provide cash values that are available to the policyholder at certain points in time during the life of the policy. The amount of the benefit is typically based on a set of assumptions including the life expectancy of the insured, expense and mortality charges.

Many people purchase Life Insurance to cover the financial needs of their dependants in case they die prematurely. It can help ensure that the mortgage or other debts are paid off, and that any dependents receive an income to maintain their standard of living. It can also provide a lump sum to pay for funeral expenses and other final costs. Some policies include riders that allow you to add additional coverage at a later date without having to undergo further underwriting, or to skip premium payments in case of financial hardship.

Whether or not you need life insurance depends on your situation and goals. It’s a good idea to consider your options at key milestones in your life, such as getting married, having children, or taking out a major loan like a mortgage. You should also reevaluate your needs regularly, particularly following significant events such as divorce, a job loss, or the birth of a child.

If you’re single, life insurance may not be necessary. However, it can be a good way to ensure that your loved ones don’t have to sell off their assets or withdraw from other savings to cover the cost of your funeral and other related expenses. You should think about how much your death could impact your loved ones, and what expenses they might have difficulty covering on their own, such as mortgage payments, college tuition for the kids, or other debts that need to be paid off. You can use online calculators to get a better sense of what your need might be.

In the event of your death, your beneficiaries can make a claim on your life insurance policy for the payout amount, which is often referred to as the “Maturity Amount.” You typically have to notify the insurer within 30 days of a death in order to process the claim. Some policies offer the option to assign beneficiaries through a trust, which can be helpful when trying to avoid estate taxes or to ensure that all required documentation is submitted with the claim.

Beneficiaries are individuals or entities that you appoint at the time of buying your life insurance policy. The appointing person is called the “Nominee.” Depending on your policy, the Nominee can be either one individual or multiple individuals and entities. If the appointing is a trust, it’s important to work with an attorney to ensure that the trust is properly structured.

Some life insurance policies have a “cash value” component that can accumulate on a tax-deferred basis over the course of your policy, and can be used in retirement as a source of income. While these policies come with high fees and a lower death benefit, they may be useful for those who have maxed out other tax-deferred investments or retirement accounts.