Having a temporary term insurance policy to protect your loved ones is regarded as a sound financial planning tool. There are numerous benefits of having a temporary term life insurance policy, including: 1. protect your loved ones from income loss and financial catastrophe. If you have young children, a spouse or even elderly parents that depend on your income. In the event of death your term life insurance policy will be the replacement of that lost income so that your loved ones do not endure financial crisis. 2. Term Insurance can be an inheritance to your heirs even if you currently have no assets.
When you buy a temporary term life insurance policy, you provide a means of financial security for your beneficiary(s): (family, dependents, loved ones, etc) for a specified term of years for a specified premium(the monetary difference between the guaranteed return and the possible return on an investment) so that upon death they will be able to meet financial responsibilities previously covered by your income.
Term insurance has been a major component of estate planning. It can be very useful for financial planning, especially for parents of young children and those who support a spouse or a disabled adult or child. In addition to helping to supporting dependents, a temporary term life insurance policy can provide cash at death to pay the deceased's debts, funeral expenses, and income or estate taxes.
Below are some key considerations to help evaluate your life insurance needs.
Dependents Self Sufficiency:
If you have dependents that either unable or a long way from taking care of themselves financially, such as disabled or young children, a life insurance policy can provide piece of mind that your dependents will be cared for financially.
Dependents Financial Needs:
If you are currently supporting your dependents financially, such as paying college or graduate school tuition, it may make sense to ensure that this financial arrangement continues by purchasing a life insurance policy.
Settling Personal Financial Obligations:
You may have personal debts, such as a mortgage, healthcare expenses, or funeral expenses that you would like to take care of in the event of your death. A life insurance policy can provide a financial umbrella to settle these debts.
Avoiding Probate and Estate Taxes:
Depending on the size of your estate, naming your dependents as beneficiaries on your life insurance policy may help them to receive money sooner and better limit their tax liabilities, as compared to traditional estate transfers.
If you decide to purchase a temporary term life insurance policy, the following factors should be considered:
1. Face amount (protection or death benefit), 2. Premium to be paid (cost to the insured), and 3. Length of coverage (term)
Various insurance companies sell term insurance with quite a number of different combination's of these parameters. The face value can remain constant or decline. The term can be for one or more years. The premium can remain level or increase. A common type of term is called annual renewable term.
It is a one year policy but the insurance company guarantees it will issue a policy of equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured's age at that time. Another common type of term insurance is mortgage insurance which is usually a level premium, declining face value policy.
The face amount is intended to equal the amount of the mortgage on the policy owners residence so the mortgage will be paid if the insured dies. A policy holder insures his life for a specified term. If he dies before that specified term is up, his estate or named beneficiary receives a payout. If he does not die before the term is up, he does not receive a payout. In the past, these policies would almost always exclude suicide.
However, after a number of court judgments against the industry, payouts do occur on death by suicide (presumably except for in the unlikely case that it can be shown that the suicide was just to benefit from the policy). Generally, if an insured person commits suicide within the first two policy years, the insurer will return the premiums paid. However, a death benefit will usually be paid if the suicide occurs after the two year period.
Life Insurance can be used to pay estate taxes, so that your heirs wont be forced to sell assets at fire sale prices to cover tax payments. Life Insurance can also be a form of savings account since some policies allow you to build cash value, which can be withdrawn or borrowed at your request. Life Insurance can also be used to make planned charitable contribution at the time of your death.
