Uses for Life Insurance Benefits
Life insurance can be an important part of your financial strategy. That’s because a life insurance policy can help you ensure that your loved ones have a secure financial future after you pass away.
Here are some common uses of life insurance benefits:
Paying final costs
Life insurance policy benefits can be used to help pay for final expenses after you pass away. This may include funeral or cremation costs, medical bills not covered by health insurance, estate settlement costs and other unpaid obligations.
Paying off debt or replacing income
Life insurance benefits can help replace your income if you pass away. This means your beneficiaries could use the money to help cover essential expenses, such as paying a mortgage or college tuition for your children. It can also be used to pay off debt, such as credit card bills or an outstanding car loan.
Some people purchase life insurance with the intention of leaving the death benefit as an inheritance to their loved ones. If you’d like to have a specific person receive your benefits as an inheritance, the Insurance Information Institute (III) suggests naming your chosen heir as the beneficiary on your policy. This will ensure that your life insurance benefits fall into the hands of the person you intended to receive it.
Annuities: Are they right for you?
An annuity may be a viable option for your retirement financial security. An annuity is a contract between you and the insurance company by which you make a lump sum payment or series of payments. In return, the insurer agrees to make periodic payments beginning immediately or at a set date down the road.
Types of annuities:
Fixed: Earning a minimum rate of interest during the time that your account is growing. Periodic payments will remain an established dollar amount, either for a defined period of time or for an indefinite period (such as the lifetime of the account).
Variable: You chose to invest your purchase payments from various investment options (typically mutual funds). Amount of payments will vary.
Equity-indexed: A minimum return that can vary. When making a lump sum payment or series of payments, the insurance company credits you with a return that is based on charges in an equity index.
Benefits of an annuity:
- Diversifies your portfolio among a number of assets and manages your portfolio
- Avoids outliving your assets, since annuities pay indefinitely
- Protects your assets from creditors
Look at your immediate and long-term financial needs to determine if you can afford to open an annuity. Should you have a sudden need for cash, you can usually withdraw a small amount from a deferred annuity without suffering a penalty. However, you will likely suffer a penalty if you withdraw a small amount of money after only a few years of having an annuity.