Most people do not like to think about life insurance. This is due to some preconceptions and the desire to drive away bad thoughts with the confidence that nothing bad will ever happen to us. But there are other people who care about themselves and their family not only during the period of well-being but thinking about possible unforeseen situations.
In fact, the question of how to insure yourself against unforeseen serious illnesses or accidents bothers some people so much that they even begin to engage in life insurance themselves in order to study the whole process more deeply.
When we think about life insurance, a thousand questions arise in our heads.
In which company, for how long to insure your life or a child? Which options to choose for how much? How to calculate everything?
When Do Most People Start Thinking About Life Insurance?
Life insurance is voluntary, and therefore not mandatory. But, as a rule, people are especially interested in getting insurance several times in their lives.
According to the study, 4 out of 10 people buy a cumulative life insurance policy because of an upcoming important event, for example, a wedding, buying a house, having a baby, etc.
Having children in the family is the greatest incentive to think about insuring your life. Parents want to be sure that children will be protected financially if something happens to their parents.
The two most important aspects that we will look at here are:
Why do you need life insurance and how much money is needed for reliable insurance coverage?
The Points for Consideration
Financial Protection
This is one of the most common reasons for purchasing an accumulative life insurance policy. You want people who depend on you financially to take care of themselves in case of an unforeseen situation with you. Usually, this is your other half and children.
Repay debt and expenses is one more reason to opt for life insurance. Unfortunately, there are cases when due to an unexpected loss of a breadwinner “inherited” there are debts or a loan.
Responsibility for repayment of the loan is shifted to the shoulders of the grieving wife or husband, as well as children. In this case, a great help is provided by the payment under the insurance policy. A family can use the received insurance amount to pay for various expenses, including for treatment, surgery, rehabilitation, funeral costs, etc.
Saving Money Issue
One way to use a life insurance policy is to pay for the education of children at a college or university. You can be sure that the cost of educating children will be covered by insurance policy payments, even if you are no longer around.
The second option is the cumulative insurance of your child until the age of majority. Thereby you insure your child from accidents and critical diseases with the simultaneous accumulation of your contributions. After attaining 18 years of age (the time of admission to higher educational institutions and the emptying of parental purses for studies), the policy expires and the insured receives the accumulated amount of contributions.
Support in an unexpected situation is also crucially important. They try not to think about the bad, but today’s prices for medical services can be shocking. At the moment when you do not know what to do and where to go, when finances are critically lacking to cover bills – the payment for an insured event will override a significant part, or even all expenses.
Think not only about yourself but also your loved ones!
How Much Life Insurance Do You Need?
As soon as you make sure that you need life insurance, you need to think about how much money you need when the contract expires. Calculate your income, expenses, and debts, calculate what amounts your heirs may need after you leave or lose your legal capacity.
If your family has a small or underage child, you need to take into account the fact that he will need reliable support in the future. Count the approximate annual amount and multiply it by the term of the future life insurance contract.
Blood-Curdling Story
One February evening a friend of mine was driving along a country road. It was snowing heavily. Suddenly, a slow wagon crawled in front of him. He trudged behind it and then decided to overtake. Next, he almost walked around it when his car fell into an uncontrollable skid.
So, he turned the wheel and pressed on the pedals, trying to align the car. But it was useless as he was turning in the middle of a busy road. There was no separation fence, and stepping to the oncoming lane meant dying. But he was lucky, particularly, he grounded the right shoulder. His car landed on the roof in a soft snowdrift. People who had been driving pulled him out of the overturned car. To his happiness, he was alive.
He was then not yet thirty, his wife did not work, and he had a mortgage loan for an apartment. A few days later, he thought: what if I had died, or become disabled?
For a family, this would mean a financial abyss, from which one can never get out! Then he thought: what happened once could happen again. Is there any protection against such events? In search of an answer, he very quickly came to the idea of life insurance.
Why Do Your Family Need a Policy?
Our plans for the future, the well-being of our families are made on the assumption that we will be alive and feel well. Moreover, we can earn enough money to support the family. But a case may suddenly interfere with our plans.
There are events that we cannot control, for example, illness or accident. Suddenly, they can cancel all plans and put the family on the edge of poverty. Life insurance eliminates these heavy risks from life. So we guarantee close financial security.
You might be surprised but life insurance is very widely used in personal finance. Let’s go from simple to more complicated ways to use life insurance.
A simple idea lies on the surface: a series of uncontrollable events can inflict serious financial damage on a family. To protect yourself from this, you need to transfer the dangerous risks to the insurer. This is death; injuries and disabilities; deadly diseases, as well. Family budget any of these events will cause heavy damage. The policy will protect the family by paying a large amount in case of adverse events.
Let’s Think About the Children!
If the spouses have children, they need to grow. Planning their schedule, preparing food and buying clothes as well as paying for the education of children means being in a desperate need for money so that later the matured man could begin his independent life.
But if, due to the tragic accident, one of the spouses becomes disabled, or leaves the life, how can another one bring up children alone? Life insurance solves this problem.
The level of protection is calculated so that even in a critical situation, the family could have money to live, was able to return the mortgage, and pay debts. The last but not the least problem is to complete all your important long-term tasks.
How to Protect Your Assets?
The life insurance contract has a special and crucially important peculiarity. By law, the funds invested in a life insurance policy are impossible to foreclose. Assets cannot be taken away by the court, as well, they are not about to be seized.
These savings will not be compromised due to family problems, or a dispute with a business partner. Savings belong only to the owner of the contract. No other financial instrument provides equally powerful protection of assets from external encroachment.
For wealthy people, it is very important. Many assets can suddenly be hit. However, capital in life insurance is not available for withdrawal. Therefore, for wealthy people, life insurance is of considerable interest.
Funds in the life insurance contract are not subject to capital gains tax. As long as the contract is valid, the growth of capital is exempt from taxation. This is a very important thing to mull over while creating capital. A life insurance contract allows your capital to grow faster.
Effective Investment Plans: Dreams Come True?
Once in England, people thought: if the policy reliably protects assets from recovery, and exempts from taxation, then life insurance could be a very convenient form for long-term savings plans. Then, such investment contracts have been developed. They are called unit-linked policies, or the “English investment method.”
Unit-linked contracts are effective investment plans that are legally encapsulated in life insurance. Therefore, they have all the benefits of life insurance policies. It is the protection of assets from recovery, preferential taxation and targeted inheritance of capital through the indication of the beneficiaries. Such plans are very often used to create personal capital, and trust funds needed by the family.
Heritage Increase
Perhaps this will surprise you, but much more money is kept in life insurance companies in the world than in banks. This is partly due to the fact that generation after generation of dynasty insures the lives of all family members in order to increase their capital.
When the life of one of the family members ends, a large payment under the contract goes to the family trust. These funds are then used for life insurance for babies as soon as they are born. This continues generation after generation.
Furthermore, since the amount of insurance payment every time is much more than the invested funds, the capital of the dynasty grows very strongly over time. Thus, any of us can initiate the capital of our dynasty by opening a life insurance contract.
Think how much easier it will be for grandchildren and great-grandchildren if the family is well provided with money right at the very beginning of their life journey. You can create a legacy of millions of dollars with very affordable contract contributions. Nearby there is another opportunity that people don’t even think about.
Many grandparents keep a certain inheritance for their grandchildren, often it is cash or money in bank accounts. However, then the grandchildren will receive only this amount. In some cases, if you invest the available savings in the grandparent’s life insurance policy, the grandchildren after their departure receive a significantly larger amount. With the help of life insurance can be increased inheritance for loved ones.
The Equation in Inheritance
Imagine aging parents who have already brought up son and daughter. Certainly, they possess the apartment which they want to give to children. To transfer it to one child means to hurt the second kid. Bequeathing two of them means forcing them to divide the property.
Well, how to equalize children in the inheritance? To remove possible conflicts in the family, parents can open a life insurance policy with a payment equal to the value of the apartment. Then one child will receive real estate, while the other is going to get the payment of the policy of the same value.
Please take into consideration the following fact. Having applied this approach, the parents double the inheritance of children.
Financial Declaration of Love
We strive to protect and protect loved ones. Think about how hard it will be for close people if you leave them.
One more aspect of this issue apart from emotional trauma is financial matter, especially if you are the breadwinner of the family. We must provide protection for our loved ones from such events. Therefore, life insurance is a financial declaration of love for loved ones.
With life insurance, we tend to protect those we love from the negative events and create for close significant capital. Protecting assets from prosecution, creating and increasing an inheritance, ensuring preferential taxation for capital are the tasks which life insurance is capable of solving for you.
Be sure to use life insurance. This is a powerful lever that raises a dollar for a cent. To make this flexible, efficient tool work, this powerful financial lever is in your own interests.