Parents Life Insurance
Parents with kids should be considering life insurance to leave for their surviving family members. The money from the policy will cover any debt accrued by the policy holder. The policy should also cover the loss of a spouse's income. Many parents use life insurance to plan for the untimely demise of both parents. Benefits may be allocated to guardians of young children for care until the children are of age to manage their inheritance.
Who Needs Life Insurance?
Parents of all ages should have life insurance to protect their children in the event of their untimely death. Even parents in their early twenties should have insurance. This ensures the family will be financially stable if either or both parents pass away.
What Type of Insurance Should Parents Have?
Parents have the option of cash value life insurance or term life insurance policies. Seventy percent of life insurance policies are cash value. Cash value life insurance policies typically have higher premium costs than term life insurance premiums.
When parents buy a cash value life insurance policy, they pay regular premiums. The insurer will invest the premiums, less any expenses, for parents. If one or both parents die, the insurer will pay out according to the premium. If no one dies before the policy expires, the premiums will be refunded back with interest and minus any expenses.
Most parents prefer this type of insurance because the premiums will be refunded if the parents do not die within the term. This ensures parents are protected, but no money will be lost if the insurance is not used. Parents also prefer this method because interest accrues on the money.
With term life insurance, insurers pay regular premiums for 20 year term to 30 year terms. If an insured party dies within the term, the insurer will pay a death benefit. If the insured parents do not die within the term, and the death benefit is not used, the premiums will be lost. Parents sign up for term insurance because the premiums are typically 10 times lower than cash value policies.
Many experts recommend buying a term life policy and investing the difference between cash value policy and term life insurance. Most investors will get between eight and 12 percent return on a mutual fund if invested properly, but a cash value policy will only yield 2.4 percent interest for whole life, 4.2 percent interest for universal life and 7.4 percent interest for variable life annually. The evidence reveals that investing in mutual funds will yield higher returns.
Many people are experiencing financial difficulty and cannot afford the higher premiums associated with cash value whole life policies. The option for purchasing term life and investing the difference fits the budget constraints better than many other options. Premium costs can be lowered even further by converting a term life insurance policy to a permanent policy. Permanent life insurance ensures that premiums remain low and the death benefit will be guaranteed.
With cash value policies, it is possible to cash out a policy early with penalties if the cash is needed. The penalties can be substantial but, at least, the funds will be available. This may be a life saver if unexpected expenses arise.
Consider Purchasing Life Insurance
Unless parents are independently wealthy, life insurance is probably necessary. Many parents purchase insurance policies even when they do not think they need insurance. Before canceling a policy or cashing out a policy, parents need to ensure they do not need an insurance policy. Most parents cancel their policies after their children move out of the house, but many continue life insurance to pay for medical expenses, outstanding debt and final expenses.
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