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- What does life insurance cover?
- October 3, 2013 5:05 PM
By Emily Miller
Everyone knows that a life insurance policy is an insurance contract in which an insurance company promises to pay out a monetary benefit to your beneficiaries if you should die prematurely, but you may be unaware of other benefits that are “hidden” inside most policies. .
There are many ways you may be able to use or access the proceeds of a life insurance policy, but not all of them are immediately obvious. You may find the following list surprising.
Cash to meet daily living expenses
The proceeds of a life insurance policy can help maintain your overall lifestyle, not to mention household bills such as your mortgage, utilities and car payment, and other necessities. Brian Ashe, spokesperson for the LIFE Foundation, says that the general rule of thumb is to purchase a policy with a death benefit that is no less than 10 times your annual income.
“Life insurance has to be sufficient enough to replace 60 to 75 percent of the policyholder’s pre-death income,” says Ashe. “The money has to last the family a long time, or at least until the youngest children become self-sufficient.”
For example, if your income is $100,000 annually, in order to provide income to your family that is equal to the lifestyle they are accustomed to, Ashe suggests purchasing a policy with a $1 million death benefit.
However, in recent years some insurance experts have increased that number to 12 to 15 times the policyholder’s annual income due the current economic condition and in light of the fact that life insurance premiums are now at or near all-time industry lows
“The current interest rate environment is the reason behind the increase,” said Ashe. “When interest rates are lower, your interest-earning capabilities will also be lower, so you’re going to need more capital. The money generated by the life insurance benefit can only be invested safely in a stock instrument that has a much lower rate of return, so you have to compensate by having a larger pool of money in the death benefit.”Pages: 1 2 3 4 5
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