While covering funeral expenses is often thought of as the main use of life insurance, there are many things that a life insurance policy can be used for. These can range from taking care of the educational costs for children or grandchildren to providing for one's favorite charity or alma mater.
Funeral Costs
A common usage of life insurance is to cover funeral costs for the deceased. A portion of the policy may be made out directly to a funeral home, saving the surviving family members from having to deal with the financial aspect of a funeral.
Education Fund
Another popular use of a life insurance policy is to cover education costs for children or grandchildren. This is actually a pre-death benefit that uses the cash value of a whole-life policy to pay for college.
Donate to Charity
Leaving money to a favorite charity or school is another use of a life insurance policy. As an added benefit, if you are leaving money to a non-profit organization, you may be able to deduct a portion of the insurance premium from your taxes.
Level Inheritance
Another use of life insurance to create an equitable inheritance plan. If there are three children, instead of leaving the family's $200,000 home to all three, it could be left to one child with the other two receiving an equal value from the life insurance policy.
Provide For Survivors
Another common usage of life insurance is to provide enough money for the well-being of survivors, most often the person's spouse. A life insurance policy can make sure the survivor will not have to worry about finances for the remainder of her life.
Mortgages and Debts
A life insurance policy can be used to cover the cost of paying off a mortgage if the insured person dies before the home is paid for, as well as be used to cover other individual debt, such as car loans or credit cards.
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