If you have a family, you’ve undoubtedly looked into life insurance before. Most financial advisors recommend having life insurance policies in place so that your loved ones receive the support they need should you pass away. Life insurance money replaces lost income, provides a financial safety net for your loved ones, and also ensures they don’t have to stress about the cost of a funeral. Indeed, having one of these policies in place is a definite benefit to your family.
Despite how standard life insurance is, the nuances of these policies can be tricky. If you’re looking at these policies, here are three things you should know.
Your Life Insurance Policy Should Be 10-15x Your Income
When it comes to life insurance, sadly, many people do not get the coverage that they need. It’s not uncommon for people to get a cheap policy that will pay 2x their salary or maybe 5x. These are often not what you want. Experts tend to recommend having plans that will pay 10-12x your income upon death.
The reasoning is that the death of a working spouse means lost income, which impacts the ability to raise a child. If you get a plan that is 10x your pay, and your spouse saves the money and spends it over 15 years, then they’ll pretty much replace your income, thereby enabling the kids to go off to school without the remaining spouse stressing about finances.
Choose your coverage carefully and, when in doubt, err on the side of caution!
Payments Are Generally Non-Taxable
When beneficiaries receive payouts on life insurance policies, they are generally not subject to income tax. If you accept payments over multiple years, then the interest on the amount not yet paid is subject to income tax. However, there is still no tax on the death benefit amount itself.
Of course, before getting a policy, you should speak with a tax planner to make sure that your particular insurance product doesn’t have any taxation.
The value Can Be So Much More
Life insurance can be a powerful wealth-building vehicle because of how flexible it is. For example, with whole life insurance policies, there are many ways to add money, borrow against your benefit interest-free, and purchase paid-up additions. Term life policies (the most common ones) can provide a cost-effective way to ensure your loved ones have a high quality of life.
When used correctly, these plans can protect and enhance your family’s wealth.
You Should Have A Policy
No matter how much you make or where you work, you should probably have some life insurance coverage. It’s not essential, of course, but it’s great peace of mind to know that your loved ones will have enough money, even if you’re no longer there to earn it.
If you don’t have a plan that covers 10x your current pay, consider getting one as it can ensure that your family members have not just enough to survive, but enough to thrive and live!