What is Life Insurance?One of the few certainties in life is that it will eventually come to an end. While death isn’t a pleasant topic to contemplate, it’s not good to entirely avoid the subject. At least, Massachusetts residents should make sure their loved ones will be financially taken care of if they pass away. For many residents, preparing for the worst includes purchasing life insurance.
Life insurance policies, in their most simple form, pay death benefits to beneficiaries that are named in a policy. Some life policies also include investment options that can help residents save for retirement or other financial goals.
Who Can Be a Named Beneficiary?Named beneficiaries are generally the parties that will receive the life policy’s death benefits if they’re paid out for a claim. These parties are called “named beneficiaries” because they’re usually explicitly named in a policy’s documentation.
When purchasing a policy, residents can name almost any person or organization as a beneficiary. People frequently list family members, but friends, nonprofit organizations and businesses can often also be listed. Trusts are another option, although listing a trust may have tax implications that don’t arise when an individual is listed.
When multiple parties are listed as beneficiaries, each person or organization is typically given a percentage of the policy’s death payments. The payments may be divided evenly between beneficiaries, or each beneficiary might be given a different amount.
What Can Death Benefits Be Used For?
In most cases, there are few stipulations on how beneficiaries use death benefits they receive. Many people choose to do some or all of the following, but this list is far from comprehensive:
- Support dependents who relied on the deceased policyholder’s income
- Pay outstanding loans and lines of credit off
- Fund a college education or home purchase
- Care for a family estate that has been passed on
- Cover end-of-life and funeral expenses
When businesses and organizations receive benefits, they might use the funds in a variety of ways. Businesses may need the money to hire a key employee, or they could choose to pay off investors and close their operation. Nonprofits might use the money to improve their financial stability, grow their organization or further their cause.
What Types of Life Policies Are There?Most life policies can be broadly categorized into term life policies and whole life policies. Both types of policies offer death benefits, but there are substantial differences between them.
Term life policies normally provide coverage for a set term, and their premiums may remain stagnant throughout the duration of their term. After their term is over, coverage usually ends and policyholders no longer have to pay premiums.
Whole life policies frequently are designed to offer coverage throughout a person’s entire life, with premiums increasing as the policyholder ages to account for the increased risk for the person passing. In order to offset the increasing premiums, most whole life policies have an investment component that may grow as the policy ages. The investment component is intended to give policyholders a way to save for retirement, and the interest generated off the investments often covers the premiums. Thus, these policies can become effectively free later in life if the interest generated is more than the premiums charged.
Who in Massachusetts Needs a Life Policy?Many Massachusetts residents could benefit from getting a life policy. As a general rule, purchasing coverage is a wise investment if passing away would be a financial hardship to others.
In some cases, even residents who already have a life policy might want to purchase an additional one. As life circumstances change, the need for coverage sometimes also changes.
An experienced insurance agent can help residents decide whether they need a life policy. Assuming residents do, an agent can also help determine which type of policy makes more sense and how much coverage ought to be purchased.