Life Insurance: Protecting Your Family's Future

Life insurance is a way to protect your family financially when you are no longer around to provide for them. It can help your family maintain their standard of living by covering mortgage payments, care for disabled family members, and basic needs like food and childcare. It can also pay for funeral expenses, medical bills, and any outstanding debts. There are different types of life insurance policies, including term life and permanent (cash value) life insurance, and the amount of cover you need will depend on factors such as the size of your family, your financial obligations, and your career stage.

Lump sum and/or monthly income for your family

Life insurance can provide your family with a lump sum and/or monthly income, protecting them financially when you've passed away. This can be especially important if you are responsible for the financial security of a partner, child, disabled loved one, or ageing parent.

The death benefit from a life insurance policy can provide your family with financial protection and peace of mind. It can help them maintain their current standard of living, covering basic needs like food and childcare, as well as mortgage payments and the care of disabled loved ones.

There are a few options for how this money can be paid out to your beneficiaries. A traditional life insurance policy will pay out a lump sum, which can be a good option if your family would benefit from a large amount to make a big financial decision, such as paying off significant financial liabilities or making a large purchase. However, receiving a large sum of money can be overwhelming for some, especially if they lack financial literacy.

An alternative is a family income policy, which pays out the death benefit in monthly instalments over a set period. This can be a more manageable option for your loved ones, replicating an income from the breadwinner. It also means they won't be faced with a large lump sum that could be mismanaged. However, the longer the policy is active and unused, the less benefit your beneficiaries will receive.

Another option is to add a family income rider to a standard policy. This provides a monthly payment in addition to the lump-sum death benefit. This option usually comes at an extra cost, which varies by insurance provider.

Protection for your family's future

Life insurance is a way to ensure your family's financial security in the event of your passing. It is a way to protect those who matter most to you. While it can be a difficult topic to consider, it is an important step towards safeguarding your loved ones' future. Here are some ways life insurance can help protect your family:

Financial Security

Life insurance provides financial protection for your family, offering peace of mind that they will have some financial support upon your passing. The death benefit can assist with mortgage payments, care of disabled family members, and basic needs such as food and childcare. It can enable your loved ones to maintain their current standard of living without the worry of lost income.

Coverage for Final Expenses

The cost of final expenses, such as funeral services, burial plots, and caskets, can be significant. Life insurance can help cover these expenses, ensuring your family isn't burdened with these costs during an already difficult time.

Medical Bills Coverage

Life insurance can also help cover any substantial medical bills incurred before your passing. This can be especially relevant if you were being treated for a health-related issue.

Education Funding

Life insurance benefits can be used to fund your children's education. This ensures that your children can still pursue their dreams of higher education, even in your absence.

Debt Elimination

Life insurance can help eliminate debts, which can be a huge stress reliever for your family, especially when they are grieving. It can cover your own debts, as well as any joint debts or loans with your spouse.

Lifetime Income Stream

By choosing an annuity, your family can receive the life insurance benefit over a number of years, rather than as a lump sum. This can provide a predictable yearly income and lessen the burden of managing a large sum all at once.

Coverage for final expenses

Final expense insurance is a type of whole life insurance policy that covers medical bills and funeral expenses when you die. It is also known as burial or funeral insurance. Final expense insurance is a popular choice among seniors due to its affordable price, smaller benefit amounts, and focus on covering funeral costs.

The cost of final expenses, such as caskets and burial plots, can quickly add up to thousands of dollars. Life insurance can help cover these costs, including cremation, burial, and funeral services. The average cost of a funeral is $8,300, while the median cost is over $9,000. Cremation is only 28% less expensive than a traditional funeral.

Final expense insurance offers fixed premiums that do not change over time. It also builds cash value, which can be used to borrow against or as a non-forfeiture benefit. Additionally, it does not require a physical exam, only a brief health questionnaire. Coverage can be issued quickly, often within days of applying.

The death benefit from final expense insurance can be used to cover funeral and burial costs, medical needs, or any other expenses. While it is intended to cover final expenses, the beneficiary can ultimately use the payout for any purpose.

Final expense insurance provides peace of mind and financial protection for your family during a difficult time. It ensures that your loved ones won't be burdened with the hefty out-of-pocket costs associated with end-of-life care and funeral arrangements.

Coverage for medical bills

Life insurance can help protect your family by covering medical bills in several ways.

Firstly, the death benefit from a life insurance policy can be used by beneficiaries to pay off any outstanding medical bills left behind by the insured. This can provide financial relief to loved ones during a difficult time.

Secondly, some life insurance policies include a terminal illness rider, which allows the insured to access a portion of their death benefit if they are diagnosed with a terminal illness. These funds can then be used to cover medical bills.

Thirdly, certain types of life insurance, such as whole life or universal life, accumulate cash value over time. This cash value can be borrowed against or withdrawn to cover various expenses, including medical bills. This provides a flexible financial resource during the lifetime of the insured.

Additionally, life insurance can also cover final expenses, which may include medical bills incurred immediately before death. While this is usually a small portion of the overall death benefit, it can be crucial in settling outstanding healthcare costs.

It is important to note that life insurance does not typically cover costs from regular hospitalization for non-terminal illnesses or ongoing medical treatments. However, with the inclusion of certain riders or living benefits, it is possible to utilize life insurance to cover medical expenses while the insured is still alive.

Whole life insurance for lifelong protection

Whole life insurance is a type of permanent life insurance policy that offers two primary benefits: a guaranteed death benefit paid to your beneficiaries when you pass away, and a cash value that can be withdrawn or borrowed from during your lifetime. Whole life insurance covers you for your entire life, and part of your premiums contribute to the cash value—a tax-efficient financial asset that is guaranteed to grow with the payment of your premiums.

Whole life insurance policies offer permanent life insurance protection with coverage that lasts the duration of the policyholder's life as long as the premiums are paid and the policy is active. Policyholders have guaranteed-level premiums that will never change, and their beneficiaries will receive a guaranteed death benefit that will not decrease. The life insurance company will pay the death benefit to the policyholder if they are still living at a specific "maturity" age, often from 100 to 121 years old.

Whole life insurance policies also have a "cash value" component, which is a lifelong financial asset that grows at a set rate each year until a certain age. This cash value can accumulate on a tax-deferred basis. The cash value of a whole life insurance policy can be a great way to help your family financially while you are still alive. Once you've built up enough cash value by paying your premiums, you can borrow against it for things like a down payment on a home, school tuition, or investing in a business. The cash value is available to use as you please. However, if you don't pay back the loan before you pass away, the outstanding loan balance plus any unpaid interest will be deducted from your death benefit.

Whole life insurance can be a good option for those who want to maximize the cash value for their loved ones. The beneficiary shouldn't have to pay any income taxes on the death benefit. However, it's important to note that whole life insurance tends to have higher premium payments compared to term life insurance. This is because it's designed to help protect you for the rest of your life and includes a cash value that can be used as an asset.

Frequently asked questions