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Conversations about life insurance can be uncomfortable, but your family must discuss it. Life insurance is a financial safety net that helps your loved ones cover expenses after your death, such as debt, mortgages and income replacement.
It can also help equalize inheritance for heirs and avoid liquidating valuable assets. Read on to learn more about how life insurance can benefit your family.
It Provides A Death Benefit
Many purchase life insurance to cover their family’s financial needs should the primary income earner die. The death benefit is a lump sum to pay bills, mortgages, and other debts. It can also be used to settle outstanding debts and taxes, provide funeral expenses, equalize estate inheritance between heirs, and more. Additionally, some permanent policies (whole and universal life) accumulate cash value, which can be accessed through loans and withdrawals. This feature can be helpful for those with temporary financial needs, but it will reduce the death benefit. Therefore, it is important to consult a life insurance Myrtle Beach SC financial advisor before making this decision.
It Pays Your Debts
Debt can be a necessary part of life, such as taking out a mortgage or having shared debt like student loans with your spouse (in states that allow community property). But what happens when you die? If you have debt, it must be paid before your beneficiaries receive any death benefit from your life insurance. This may involve selling assets to pay off the debt, which can leave your heirs much less than expected. A life insurance payout can cover your debts, so your family doesn’t have to sell their home or other assets. This also means they can avoid paying hefty interest rates or debt fees.
It Pays Your Funeral Costs
If you die suddenly, your family may be left with hefty expenses that they cannot afford. 44% of families experience financial hardship within six months after a wage earner’s death. The payout from a life insurance policy, a death benefit, can cover funeral costs and final medical bills. It can also help your loved ones pay off debts, including credit card and mortgage loans. Burial life insurance, or final expense policies, offers low coverage for funeral and other end-of-life expenses. Depending on the policy, these can be affordable.
It Pays Your Children’s Education Costs
Many life insurance policies build cash value, which acts like a savings account inside the procedure. This money can be used at any time via withdrawals or policy loans. Some parents consider using life insurance to fund their children’s college education. However, they should first consider their other financial priorities, such as building an emergency fund and paying off high-interest debt. With rising college tuition costs, making smart decisions about saving for your child’s education is important.
It Pays Your Spouse’s Mortgage
Many people choose to purchase life insurance so their loved ones are not burdened with mortgage debt upon their death. It’s a common strategy that can help prevent foreclosure proceedings and allow surviving spouses to move closer to family or a warmer climate. When calculating how much life insurance you want to buy, consider the amount of your current mortgage and other expenses your significant other would need to cover if you died. Be sure to factor in income replacement costs, such as hiring a babysitter or maid, and retirement savings, if applicable. Generally, you’ll want enough coverage to provide for your spouse’s living needs up to retirement age.
It Pays Your Inheritance Taxes
If your estate’s value reaches a certain threshold, you might be hit with federal or state inheritance taxes. These can eat away at your beneficiaries’ payout, especially if they have substantial assets or investments. However, life insurance payouts are income-tax-free. Additionally, you can withdraw money from a cash-value policy without paying tax if you do so within the limit of your policy’s “policy basis.” Putting a life insurance policy into an irrevocable trust (ILIT) is another way to remove it from your estate’s taxable value. Talk to your financial planner about this option. They can help you create the best plan for your situation.
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