What Does Life Insurance Cover
For many, life insurance is a key component of long-term financial planning. It's a way to help provide your family with some financial protection after you are gone.
While getting a life insurance policy is increasingly common, there's still confusion around what life insurance covers. If you have an active life insurance policy, after you pass your life insurance company will pay out a death benefit to your named beneficiaries. Your life insurance beneficiaries can use funds in various ways, from replacing your income to paying for child care.
What Life Insurance Can be Used Towards
When your beneficiaries receive your death benefit, it will come in one lump sum. Your life insurance beneficiaries may use the funds in a variety of ways, including:
Financial Support and Income Replacement
If you're the primary earner in your family, your loved ones could face some financial struggle after your death, especially if you pass unexpectedly. The funds from your life insurance policy can help replace your income to help provide a stable income source for your family.
Outstanding Debts
Life insurance can also cover any outstanding debts. Those debts may range from your monthly mortgage payment to smaller credit card bills. The death benefit from your policy may help pay down your child's or spouse's student loans. And, if you run a business, your life insurance can help cover outstanding business loans.
Child Care
In many families, it is not unusual for one parent to work while the other stays home to take care of the kids, especially when they are young. If you pass unexpectedly, your spouse may have to return to work, leaving them to find new ways to provide childcare. As a parent, you might worry about your children's education and care costs—a life insurance policy may help cover those future expenses.
Supplemental Retirement for Your Spouse or Partner
If you're the primary earner in your family and your spouse relies on your retirement contributions, passing away unexpectedly could leave them without enough funds in retirement. Your payout could help enable them to continue to contribute to their retirement savings for their golden years.
Medical Bills
If you get sick or injured in an accident and require extensive medical care, your death benefit may help cover those medical bills, relieving your loved ones of some of that burden.
Tuition
Just as your life insurance policy may help your loved ones pay down student loans, it can also assist in paying for tuition if your children are still in school when you pass on. This can be extremely helpful as college and educational costs rise.
Funeral and Burial Costs*
Today, the median cost for a funeral is nearly $8,000. This could leave a significant financial burden on your loved ones if they need to come up with those costs out of pocket. Your life insurance policy coverage can assist with paying for this expense.
*This is not a preneed insurance contract or agreement. Benefits are payable to the beneficiary or beneficiaries as directed by the owner of the policy.
Different Life Insurance Products Offer Varying Benefits — Especially for How Coverage is Used
All life insurance policies are not equal. Part of deciding the best life insurance product for you and your loved ones is determining which benefits you may want in your moment of need.
Some examples of various benefits include:
Living Benefits
Living benefits allow a policyholder who has a qualifying chronic, critical or terminal illness or condition to receive a portion of their policy's death benefit before they pass. These funds can help pay for medical costs, outstanding debts, and care while you are still living.
Quality of Life Insurance and Guaranteed Issue Whole Life Insurance both offer policyholders the option of living benefits. If you become sick with a qualifying illness, living benefits may provide some peace of mind that your family will have financial support to pay for your medical costs.
Cash Value
A cash value benefit means policyholders may borrow against the policy and use those funds to cover expenses during the policyholder's lifetime. Some of these expenses can include debts, loans, and even vacations. What's important to remember is you'll need to pay your policy back, with interest, to maintain the full death benefit.
You may also choose to withdraw the entire cash value of your policy. However, if you surrender your policy for its current value, you will no longer have life insurance coverage. Life insurance policies that include cash value benefits are Whole Life Insurance and Universal Life Insurance.
The Best Life Insurance Choice for Your Needs
When it comes to picking a life insurance policy, you want to look at your family's needs. After you're gone, having peace of mind that they have some financial protection can make things much easier during difficult times.
Knowing what life insurance covers and the specific benefits of different policies may help make your choice easier. If you have questions, we're here to help. Contact AIG Direct at 800-294-4544 to request a quote or learn more.