Picking the right kind of life insurance for you can be a confusing process. And since it is such an important decision, you want to make the right choice for you and your loved ones. The good news is that most insurance falls under one of two categories – term or permanent. Creating a legacy for your family does not only include creating lasting memories it also means creating a post-you life that is as easy as possible for those you leave behind. Knowing more about each can help you narrow down the options.
Understanding Life Insurance Payouts
Life insurance is similar to other type of insurance in that you pay a premium each year and receive a certain coverage amount in return. If the policyholder passes away, the beneficiaries will receive a death benefit, which is the same amount as the coverage. There are a few payout options, so understand these before picking a policy. You can review a guide on how a life insurance payout works – many require that the beneficiary files a death claim. There are a few payout options, such as a lump sum amount. It means your beneficiaries will receive the death benefit as one, single payment. While it is common, it can be risky if your loved ones do not manage the amount correctly.
You could also have your beneficiaries receive monthly payments to make sure the money lasts. So, if you had a $600,000 policy, you could get a $50,000 payment each year for the next 12 years. This could be a good option if you need funds while there are still children in the household who need to be supported. You can also choose a retained asset account, meaning the proceeds can be placed in an account that continues to accrue interest. And you can also choose an annuity, which guarantees your beneficiaries will receive payments during their lifetimes.
Getting Term Insurance
If you need coverage for a certain length of time, you could choose a term policy. It lets you match the policy length to the length of time you need it. If you have kids and want to be able to pay for college education, you might want to get term life for about 20 years. If your household relies on your income to pay back the mortgage or other debt, you could get a policy for the length of that time period. This is also a good option if you need a large amount of coverage yet have a limited budget. If you pass away when the term is up, the coverage will stop, unless you choose to renew it. Just remember that the new rate after renewal might be higher since you will be older.
Getting Permanent Coverage
If you need insurance for the rest of your lifetime, you can choose permanent life insurance since it will pay a death benefit, no matter when you pass away. It also has a savings element that can grow on a tax-deferred basis. If you need to borrow funds, you can borrow against the policy amount. You can also use the savings element to pay the premiums each month in case you can’t afford them at some point.
