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Understanding the Value of Life Insurance
When someone dies, there will typically
be an identifiable financial loss. It might be the primary
income for a family. Or, it might be the intrinsic value
of the person who was responsible for the care of children
or a feeble adult.
It could even be a company business
associate who spearheaded the sales division or someone
who took charge of its operation when senior management
needed to be absent.
This is sometimes referred to as the
human life value of the deceased party. The value itself
is usually based on the future loss of income (i.e.
salary or paycheck), the future cost of replacement
(i.e. child caring or adult caregiver), or the immediate
net loss to the company while it struggles to replace
the key employee.
For many people, the loss of income
is the primary reason to buy life insurance. Losing
the paycheck of either deceased spouse will leave most
families in a tenuous situation because this usually
means their normal lifestyle becomes vulnerable to readjustment.
In the postwar fifties, the primary
breadwinner was usually the father. Mother did the cooking
and cleaning, while father went to the office. Mom was
there when the kids came home from school. And Dad was
working 9 to 5 in order to bring home the paycheck.
Today, of course, women participate
equally in the workforce. While there continues to be
a discrepancy in the amount of earned income between
the sexes, nevertheless, the money Mom brings home is
vital to the financial well-being of the family.
It is no secret that personal debt per
capita in the U.S. is higher than ever. The latest data
reveals we are in a negative savings posture, which
is something that hasn't occurred since 1932. Any reduction
in take home pay can potentially devastate literally
hundreds of thousands of families.
This scenario is grim enough while both
parties are alive. The reality of what happens at the
death of either breadwinner is frightening to say the
least.
Life insurance is an important financial
asset. In fact, it should be the primary asset for families
that might experience severe lifestyle disruptions in
the event of someone's death.
Unfortunately, life insurance is frequently
misunderstood by the very people it can help the most.
One reason is because life insurance doesn't benefit
the insured party, who is typically the person paying
for the life insurance. After all, the insured party
will be dead and unable to witness the undeniable family
value of the death proceeds.
Ironically, the second reason for this
misunderstanding is because some life insurance has
a cash surrender value. This means if the owner of the
policy decides to stop paying the premium an amount
of cash is returned provided the death benefit is surrendered.
It's important to recognize there are
only two types of life insurance: term and cash value.
Term is always cheapest in the early years, but becomes
prohibitively expensive when one reaches the age of
70, or thereabouts.
Of course, this is before the normal
or expected time of death, so it is highly unlikely
that a term policy will actually pay the death benefit
unless, of course, one dies prematurely.
There are many types of cash value policies
to include the classic whole life, universal life, variable
life and universal variable life. The competitive marketplace
has produced an overwhelming number of hybrids each
one created for a specific reason that was initiated
due to government intervention.
This article will not attempt to describe
each type of policy. The important message here relates
to the extraordinary value of life insurance itself...
not any particular policy type.
Indeed, there are very few, if any recipients
of a life insurance death claim that have asked an insurance
agent what "type" of policy had been issued.
The fact of the matter is the tax-free death proceeds
provided a welcomed amount of cash at exactly the time
when money was needed the most.
This, of course, is when the income
of one of the breadwinners was unexpectedly and abruptly
cut off from the family forever. The type of policy
is not important to the survivors. The only thing of
importance to the survivors is that the policy was actually
in force at the time of death.
1howto.com
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