The ultimate value of life insurance is to protect your significant others upon your untimely death. A life insurance plan works by paying out a sum of money to your designated beneficiaries when you pass away, placing no restriction on how the cash is used. There are many scenarios in which life insurance can be particularly useful.
Head of Household
If you are the head of a household, your ability to earn money is a valuable asset for your family. Should you lose your life, your family could use the proceeds of your life insurance to replace this asset. The amount of benefit you select should be determined by the number of dependents, college plans you may have for your children and any debt you may have outstanding, including mortgage and credit card balances.
Stay-at-Home Parent
Even though a stay-at-home parent may not be earning an income, she may need life insurance to offset the economic impact of her death. Life insurance can help to cover the cost of childcare, housekeeping and other duties she normally performs to support her family. The surviving parent can also use the financial cushion provided by the life insurance to reduce his work hours while he tries to cope with the death of a spouse. Typically, a stay-at-home parent may not require as much life insurance as the breadwinner does.
Business Partner
Life insurance can be an important part of business planning. It helps to protect the business against the loss of a partner or key executive. With the company as the beneficiary of the policy, life insurance can provide the finances necessary to sustain the business short-term while it reorganizes or recruits key personnel.
Lender-Borrower
Taking out life insurance on the borrower can protect the lender in case the borrower dies before the loan can be repaid. The strategy involves purchasing a term life insurance policy on the borrower and designating the lender as the beneficiary for the amount of the loan, suggests financial expert and TV host Suze Orman. The length of the term policy should match the time period it would take to pay back the loan. A term life insurance plan is a relatively inexpensive way to help protect the interest of the lender, particularly when the loan amount is substantial.
Investment and Retirement
While term life is considered pure insurance, some forms of life insurance have an investment component attached. Whole life, universal life and variable life are variations of permanent life insurance that uses part of the premium to set up a tax-deferred investment account under your policy. You can use the cash value of the policy to increase your retirement income. You can also take out a loan on the cash value to satisfy any cash flow needs.
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