Thinking about life insurance can be scary, but it is a critical part of financial planning. Although most people understand they need life insurance in California, the vast majority never buy it or buy it too late in life.
The benefits of life insurance are many and are even more pronounced if you have debt, are engaged, are married, are a business owner, or have (or are planning to have) a family.
What Is Life Insurance?
Life insurance protects your loved ones after you die by paying a death benefit as a tax-free sum to the beneficiaries named in your policy. Assuming that you pay your monthly or annual premium per the policy parameters, then the policy remains in effect for a specific period of time or for life, depending on the type of insurance that you purchase.
Why Do You Need Life Insurance?
If you were to die tomorrow, is there anyone in your life who would be negatively impacted? If your family or any who rely on you cannot make timely payments, then they could suffer from significant monetary distress.
If you have children, then the importance of life insurance only increases. Your kids rely on your financial support for everything from their education to food to shelter. Life insurance is a failsafe designed to protect them in the unfortunate scenario that you can no longer provide for them.
Who Can Be a Life Insurance Beneficiary?
The beneficiary on your life insurance policy is the person who will receive the payout from the insurance company if you die. While there are no rules on how the proceeds from the policy can be used, it is likely that the beneficiary will use the money for items like funeral expenses, childcare, college education, day-to-day bills, and a mortgage.
When it comes to naming a beneficiary, you have the option of choosing one person or multiple, with no limit on the number that can be named. If you choose more than one person, you’ll also choose what percentage of the policy payout each should receive. In addition, a contingent beneficiary can be named who will receive the payout if something happens to the primary beneficiary.
Choosing whom to name as a life insurance beneficiary is a deeply personal matter, but it is likely that the beneficiary will be someone who is directly impacted by your passing. For instance, if you live with your significant other, you will want to make certain that they will still be able to comfortably pay bills or the mortgage without your income.
Types of Life Insurance Policies
Life insurance is available in two main types: term and whole. As the name implies, term life insurance is valid for a specific number of years—usually 10, 15, or 20—and only pays the beneficiary if you die before the term expires. Term life policies are typically less expensive than other types and have lower annual premium costs.
Conversely, whole life or permanent life insurance does not expire as long as the policy premium is paid. This type of policy includes both the death benefit and a cash component that acts like a tax-deferred savings account. The cash value accrues interest at a predetermined rate set at the time the policy is opened and can be withdrawn or used as a loan under certain conditions.
Although whole life insurance does not expire, it is significantly more expensive than a term life insurance policy. While term life premiums remain the same during the life of the policy, whole life premiums rise as you age.
Final Notes
You need life insurance to give financial security to your loved ones. Term and whole life both have their advantages, so you should choose the type that best fits your lifestyle and your goals.
Consult with an experienced life insurance agent and weigh your options before choosing your life insurance in California.
