As you grow older and build your family, your career, and your long-term future, you’ll have a lot of things to consider. As your responsibilities grow, so will your options for protecting your loved ones and your assets. And some of your most important tools will take the form of insurance policies, which can help you and your family in crisis situations — including your own death.
Life insurance is a unique form of insurance in the sense that you are not (usually, anyway) going to be around to see it pay off. But it can be a vital safety net for your loved ones and your estate, and it is an extremely important thing for you and your family to consider. Here’s what you need to know about life insurance.
How life insurance works
At its most basic, life insurance works in a way that is very similar to that of other forms of insurance. The insurance provider charges a set rate — a premium — to each policyholder. Then, in the event that a covered incident arises, the insurance company pays out to the policyholder.
Of course, in some other significant ways, life insurance is unique. You may not ever have a house fire or any other reason to file a claim with your homeowner’s insurance company, but — unless you’ve discovered the Fountain of Youth — the beneficiaries of your life insurance policy are certain to one day be able to cash in.
Life insurance companies are able to make money anyway because they invest the funds that they get from premiums, which helps them turn a profit even in years when their inevitable payouts rival their premium income. They can also make money off of lapsed policies. If policyholders stop paying their premiums and let their policies lapse, they’re no longer covered and don’t get their money back. Finally, life insurance providers usually limit the benefits offered for a certain period early in the policy, usually the first two years.
What life insurance covers
Life insurance can be immensely valuable to your loved ones. In the event that you die unexpectedly, your family could face a lot of financial stresses in addition to the obvious emotional distress. If you’re the breadwinner for your family, your unexpected death could destroy a vital source of income for your family. And funerals and other end-of-life essentials can be very expensive. All of this makes a payout from a life insurance policy extremely welcome, and perhaps even essential for your family’s financial well-being.
Payouts are made after a claim, which must be filed by your beneficiaries. They can take the form of lump sums or annuities. And, actually, they can be received before you die, in certain cases — which brings us to our next section.
Illness, expenses, and viatical settlements
While it’s not something that we want to spend a lot of time thinking about, we are all going to die someday. Investing in a life insurance policy helps us make sure that, in the event of our death, our loved ones are protected.
But the financial stresses associated with the end of your life sometimes start long before you pass away. As difficult as it can be to think about, we should remember that it is possible to become ill and struggle with health issues long before we die. In the United States, where health care costs are out of control, that can spell financial disaster for you and your family.
It can be frustrated to know that your family will get your life insurance benefits only after you die. By then, they could have mounting debts and interest that far outweigh the benefits. It would be much better, in many cases, to have the money now. And it’s possible to do through viatical settlements.
In a viatical settlement, you essentially agree to sell your policy — that is, the benefits that your beneficiaries would receive — for an influx of cash now. For those who are dealing with huge medical bills and other immediate expenses, this can amount to a huge financial win. By heading off interest and other issues, you could leave your family in a better financial position than they would be in if they had to wait for the insurance payout. Click here to learn more.
Viatical settlements make life insurance flexible and even more powerful. Life insurance has a lot of power to help you protect what matters most to you — even when you’re no longer around to do so directly.