There are many vital parts of our financial plan: estate planning, mortgages, credit cards, and UK Secured Loans. One area you need to include is insurance. Insurance answers the question, "what if something bad happens?" No one likes to think about and too many people avoid the topic of insurance because they fail to see the benefit.
But there is a benefit! With insurance, you will have peace of mind that their loved ones will be taken care of if they die. So why are you reading about insurance on a site that has to do with loans? Simple. You may want to consider insurance to cover your loans so that if you were to pass away, your loved ones will not be saddled with unexpected debt.
And, if you have a secured loan that your loved ones cannot cover, you do not want your assets seized to cover the loan. That will add tragedy to tragedy for your loved ones!
So how do you know what kind of insurance to get to cover your loans? Or any expenses at all, for that matter? The easiest thing to do is to determine the length of time that a particular expense will be present in your life and get insurance that matches the term of the expense.
For example, any death or estate tax will always be present in your life because no matter when you pass away, those expenses will be incurred. Also, if you want to bequeath a gift to a charitable organization, you will likely always want to have that as an available gift to make.
However, for many other expenses, including your loans, a temporary solution is better. For example the mortgage on your house or the loan on your car are both excellent loans to create insurance for. This way, if you were to pass away while these expenses are still present, they will be automatically paid off at your death. And because you are matching the term of the loan to the term of the insurance, you are only buying insurance for as long as you have the loan.
For example, say you have a secured home improvement loan to last for three years while you build an addition onto your home. At the same time you take out a three year term insurance policy for the same amount as the loan.
If you were to pass away in the second year, the insurance would pay your loved ones the full amount of the loan, of which they can use two thirds of it to pay the remaining portion that is still outstanding on your loan.
People do this for many kinds of loans, including their mortgage, their automobile loans, and any other kind of loan they have. It’s an excellent way to ensure that your loved ones are not going to be saddled with debt if tragedy should strike.
Not too many years ago life insurance was considered to be the indispensable platform upon which all other estate planning efforts should be based. In fact, for those in the median and lower income ranges, it was often the only recognized method for protecting one's heirs, particularly in the event of untimely death. However, over the past twenty or so years, the concept of financial planning has changed considerably. The proliferation of varied retirement plans available through work (IRAs, SEPs, SARSEPs, mutual funds, etc) has changed people's perspectives about the need for life large life insurance policies.
Does that mean that you don't need life insurance? No. Most people, perhaps with the exception of the very wealthy, do need some sort of life insurance, although even the very wealthy may opt for a life insurance policy (generally whole life) to defray the costs of burial and estate taxes.
In general, the options are whole life (also called permanent insurance) and term life, with variations like universal life or variable life that combine some of the benefits of each. Different companies offer different options, but which you need and how much you need are matters for heated debate. Those who sell one and make most of their commissions from it will vehemently try to convince you that the other is not a good investment. Here are some facts for your consideration.
Whole Life Insurance Advantages: ? Offers a guaranteed death benefit no matter how long you live ? Is generally not subject to rising premiums; rates stay the same ? Many policies become ?paid up? at some point (15 years, age 65, etc.) after which no more premiums are paid ? Has investment value which can be cashed out after some specified interval ? Can be borrowed against in case of financial emergency ? Can, in many cases, occasionally earn dividends depending on the company's solvency and accuracy in predicting actual costs ? The income from a whole life policy is tax deferred ? Can be cashed out after age 65 and used for retirement
Whole Life Insurance Disadvantages: ? Costs more than term life insurance ? Generally returns a fairly low rate of interest ? Does not begin to accumulate any real value for the first 10-15 years ? If the policy is surrendered within the first few years, money paid into it is lost ? Does not provide the investment value of a mutual fund or other investment
Term Life Advantages: ? Premiums are generally very inexpensive ? Lower premiums allow the buyer to purchase more insurance with higher death benefits ? Can be quite useful if the buyer only needs coverage for a specified period (while paying off the mortgage or while kids are in college, etc.) ? Leaves the buyer with more money to purchase other investment vehicles like mutual funds, stocks, bonds, etc. that provide higher rates of return than whole life ? Often beneficial for younger families who can't afford whole life rates, but need to insure the primary income earner
Term Life Disadvantages: ? Only pays if and when you die; you can never personally recoup any of the money spent on term life insurance ? While premiums are lower than whole life, they also tend to go up and can become unaffordable ? Term life is only available for a specific term (up to 30 years), and then goes away; if you don't die within the term, your premiums are lost
Almost everyone needs life insurance of one variety or the other. The type of insurance and the amount to purchase depend entirely upon you, your family and your mutual goals and needs. In any case, make sure the company you purchase insurance from is reputable and financially solvent. Don't be convinced by a fast-talking sales person without doing your homework first. There are few remedies if your life insurance company dies before you do.
Both Bob Benson & Ronald Hudkins are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Bob Benson has sinced written about articles on various topics from Business and Finance, Buying and Selling Home and Finances. Jeff Lakie is a contributing author at our website where You can get a free right now. Take a moment and see for yourself.. Bob Benson's top article generates over 1220000 views. to your Favourites.
Ronald Hudkins has sinced written about articles on various topics from Retirement, Jewelry and Online Business. About Ronald E. Hudkins;Ronald Hudkins is a retired U.S. Army Military Police member that was assigned as a staff researcher. He has coordinated with military and criminal investigators, set on court marshals and worked closely with the Staff Judge Adv. Ronald Hudkins's top article generates over 14800 views. to your Favourites.