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September 5, 2018

8 Things You Didn’t Know about Life Insurance

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When people hear about life insurance, they usually associate it with death, or the unfortunate events that can happen in a person’s lifetime such as sickness or accident. Well, this is true anyway because life insurance provides financial aid to the insured or his family whenever such events occur.

However, life insurance does more than paying a death benefit. Many people does not know life insurance can be utilized for other things. In fact, even those who already have their own policy  remain confused or are skeptical about what their life insurance policy can do for them. So in here, let’s discuss the common things you need to know about life insurance.

1. Life Insurance is one of the pillars of personal finance.

Most people are always interested about savings, investments and growing their wealth but are not taking into consideration a life insurance policy when it is actually one of the foundations required for financial security.

Your investments need time to grow and accumulate while life insurance is an instant guaranteed accumulated wealth that can provide benefit to your family in case of the unexpected.  While your investment is still growing for your life goals, it is good to have a life insurance as back up plan that can help you financially in case of unfortunate events. Hence, life insurance helps you build a sound and stable financial plan; it deserves consideration.

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2. Life Insurance cost is not the same for everyone.

Life insurance premiums are calculated based on several factors to evaluate a person’s risk. It includes age, gender, overall health, whether or not you smoke, occupation and other factors.

Also, purchasing a policy is relatively cheap especially if you keep up with your health. You only need to pay a small amount of premium regularly in exchange for the coverage that the insurance company will provide. For example, you could pay less than 8,000 pesos a year for a term life insurance policy for 20 years that is worth 1 million pesos paid upon your death if you are a non-smoking individual in the 30s. But if you’re a smoker or you have health problems you may have to pay triple or three times more for coverage and may even be declined for a policy.Hence, it is so important to purchase a policy early in your life while you are still young and healthy.

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3. Life Insurance has different types.

There is traditional life insurance which includes term, whole and endowment life insurance. Then there are those employment-based life insurance under group life which some employers offer as benefits. But those typically only lasts as long as you’re employed at your job and coverage is usually small.

Moreover, there is Variable Universal Life Insurance, the most popular in the life insurance segment which offers investment in mutual fund in addition to basic life insurance

Learn more about the different types of life insurance.

4. Life insurance can have living benefits.

Life insurance policies can be purchased with one or more riders. Riders pertain to additional coverage which can be added to the policy for a small cost. These riders will pay you money when you’re still alive, hence, the term — living benefits, but you find yourself under unfortunate circumstances such as accident, disability, dismemberment, critical illness and hospitalization. You can use the proceeds of the life insurance before you die or to pay for your long-term health care. These riders are important to protect you from financial impact of all risks possible to happen in your lifetime.

Aside from the riders, some life insurance policies offer cash value or investment fund value, which you can use to fund your retirement or any other life goal.

5. Life insurance serves a variety of purpose.

The major purpose of a life insurance policy is to provide financial protection to surviving dependents after the death of an insured. But what if the insured does not have any dependent since he is single and unmarried? Life insurance can still be vital as its proceeds can be used to pay for final and funeral expenses, to pay off mortgages and debts or to make charitable bequests.

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6. Life insurance proceeds are tax-free, in general.

Unlike investments or savings accounts, life insurance does not form part of one’s estate when he dies. Hence, the proceeds will not be frozen and will be given immediately to the beneficiaries. However, to be able to become totally tax-free, the designation for beneficiaries should be irrevocable. If the designation is revocable, the proceeds will still be given, but the beneficiaries will be responsible to pay the applicable estate tax. (Right now, due to TRAIN law, the estate tax is now a flat rate of 6%.)

This characteristic is also the reason why life insurance policies are being used as estate tax shield or for estate planning. The wealth or estate of the deceased person will be frozen until his heirs can pay estate taxes. It is a right move to have a life insurance policy so that beneficiaries will not have to worry about paying estate taxes as the proceeds of a life insurance can be used for such.

7. Most life insurance can fund your life goal.

If you purchase a permanent or whole life insurance and endowment, the benefits include cash values and dividends you can use for college education of children or retirement. When you get all such benefits however, the policy terminates and you are no longer insured. Basically, the option is cash value or death benefit.

If you avail a variable universal life insurance, on the other hand, it has an investment component separate from a life insurance coverage. But the same as the first two mentioned earlier, the investment fund can be used in any way you want such as to pay large expenses, college fund or for retirement.

8. Life insurance policy can help you save.

If you buy life insurance policies with cash or investment value component such as a VUL, and you do not have the financial discipline to save, life insurance may be the best tool for you to grow your money. That is because you will only have to maintain one account or policy and the amount you save quarterly will be divided to the life insurance cost and investment. The investment component is always accessible and can be withdrawn during times of emergency. It is still advisable to build a separate emergency fund though.

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If you want to learn more about the benefits you can get from purchasing a policy or if you want to get help to have the best policy for your budget and needs, a life insurance advisor can help you. Yours truly is trained and licensed to conduct personal financial planning. To get started, you may request a free consultation schedule or a free proposal.

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