Individual life insurance can play an important role in your financial planning. It can help provide financial security for your loved ones and also provide estate planning and tax-deferred savings benefits.
Death benefits paid on individual life insurance policies are generally federal tax-free and can be used by your beneficiaries for any purpose. Life insurance can be used to create a legacy for your loved ones or important causes you want to support.
Individual life insurance falls into two basic categories of term or permanent policies.
This type of policy lasts for a certain number of years, typically 5 to 30. A term life insurance policy only pays death benefits if the person dies within the policy period. It is a means to ensure that funds for specific purposes, such as college tuition, debts owed, or the mortgage on your home, are covered in case you die during a finite time frame.
As long as you stay current on your premiums, permanent life insurance provides coverage for your entire lifetime. This type of policy is often used for tax and estate planning purposes and for funding trusts for dependents with special needs. Most of these policies have a savings component that allows for the accumulation of cash value on a tax-deferred basis. Typically, the premium of a permanent life policy stays the same for the lifetime of the policy and does not increase as you age.
A mortgage payment is typically the largest monthly expense for an individual or family. Ensuring the mortgage payments are current is critical. Mortgage protection insurance makes it possible for your home mortgage to be paid if you suddenly die before the term of the mortgage has ended. You pay a monthly premium for this insurance that guarantees that if you suddenly die a lump sum is paid to your home mortgage provider.
