Situations That Presents A Good Case For Holding An Insurance Policy
Nowadays, with insurance policies becoming ever more precise, it’s especially important to understand when you need it and when you don’t.
No doubt you’ve heard the argument that the main purpose of insurance is to replace your earnings so that if you should happen to die while your children are still young they’ll be protected. Your survivors can use it to pay off debt, fund college and replace much of what you are not there to provide. You know, the cost of living.
Once your kids are grown up and on their own, there’s less reason to have insurance, right? Well, maybe.
When those responsibilities are behind you, it might be appropriate to cut back on the expense of insurance premiums and channel that money to your nest egg. For many, this is completely appropriate and proper.
Nevertheless, there are a few situations that might present a good case for holding on to an insurance policy.
1. A special needs trust. If you have children who will need your support as adults, you can use an insurance policy to continue funding a special needs trust for them after you are gone.
2. A trust for other reasons. You can also use insurance to fund a trust for children if you don’t want to leave them money outright, whether it’s because they’re too young or because they just aren’t likely to handle it responsibly.
This is another tough situation that happens in families; there might be adults, children with drug addiction or mental health issues, or some who just aren’t comfortable with making important financial decisions.
3. A spend and replace strategy. If you are a couple with a reasonable expectation that one spouse will live much longer than the other, based on mortality tables, health history, and family health history, you might consider maintaining a policy on the spouse who is likely to die first. In some cases, each spouse might maintain a policy to provide for the other.
Then you can take the approach of spending down your assets for your needs with the knowledge that the surviving spouse will be able to live on the insurance proceeds.
4. Funding your legacy. Leaving a financial legacy is important to many people, and life insurance can guarantee that legacy without cutting into your spending. It can be used to leave a gift for a charity, your alma mater, or any other cause that is important to you. Leaving a financial gift can also be aimed at children or others who are important to you.
When you’re looking at the kind of insurance that might provide for your family or your legacy, there is also a matter of choosing from the growing plethora of products.
Within each type of policy comes another set of options and choices. For example, you can buy a policy that is based on interest rates or one that is based on investment choices within the policy.
These are permanent policies that build up cash value. When examining permanent policies, however, you need to understand how long the value is guaranteed and what type of dividend options are available.
Or you can buy a type of insurance which costs less than permanent policies but expires at a certain point. Here you need to determine how long you will need to keep paying premiums. If you knew when you were going to die, the product choice would be simple, but of course, that just doesn’t happen.
While the concept of insurance is simple, a policy is a contract and therefore loaded with a lot of verbiages that are guaranteed to put you to sleep. Make sure you get complete and straightforward answers to your questions in writing.