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Life insurance can be an important part of your financial strategy. That's because a life insurance policy can help you ensure that your loved ones have a secure financial future after you pass away.
Not only can life insurance help cover your final expenses — it can also provide your family with a financial safety net by helping to replace your income or serving as an inheritance for a loved one. Read on to learn about some of the ways life insurance benefits may be used:
Here are some common uses of life insurance benefits:
PAYING FINAL COSTS
Life insurance policy benefits can be used to help pay for final expenses after you pass away. This may include funeral or cremation costs, medical bills not covered by health insurance, estate settlement costs and other unpaid obligations.
PAYING OFF DEBT OR REPLACING INCOME
Life insurance benefits can help replace your income if you pass away. This means your beneficiaries could use the money to help cover essential expenses, such as paying a mortgage or college tuition for your children. It can also be used to pay off debt, such as credit card bills or an outstanding car loan.
Some people purchase life insurance with the intention of leaving the death benefit as an inheritance to their loved ones. If you'd like to have a specific person receive your benefits as an inheritance, the Insurance Information Institute (III) suggests naming your chosen heir as the beneficiary on your policy. This will ensure that your life insurance benefits fall into the hands of the person you intended to receive it.
PAYING FEDERAL OR STATE ESTATE TAXES
Depending on state laws, your heirs may need to pay an estate tax upon receiving an inheritance. The III says that life insurance benefits may be used to partially or completely offset this cost. It'd be a good idea to consult with your insurance provider or a financial professional to understand how estate taxes may affect your beneficiaries.
Life insurance policies can also be created with your favorite charity as a named beneficiary, the III says. This can help ensure your philanthropic goals are met after you pass away, and that benefits are provided to your charity of choice.
Life insurance can be a sensitive topic, but it can help provide a more secure financial future for your family if the unexpected happens. Contacting an insurance agent can help you better understand the types of life insurance and determine what kind of policy fits you and your family's needs.