Life insurance has been on my mind a lot lately. As I experience some changes in my life, I'm considering
purchasing a life insurance policy to prevent my family from having to deal with major financial problems in the event that they lose me prematurely. As a matter of fact, at this stage of my life, life insurance has become a necessity.
I must admit that I knew very little about life insurance before I started doing some research on it. I didn't want to talk to a life insurance company though. I reasoned that a good independent life insurance advisor would be a more objective source of information.
In this article I'll tell what I have learned about the complicated subject of life insurance.
The first thing that struck my interest was the fact that life insurance proceeds go directly to your beneficiaries, isn't held up as part of your estate, and it isn't taxed. In short, your life insurance policy will benefit your family immediately, right when they'll need it most!
Let me repeat the most interesting part of this equation: There is no income tax due on life insurance proceeds! This is in sharp contrast to estate taxes which can wipe out a huge chunk of your assets.
There are different types of life insurance available, but the best value for the money in my opinion is Term Life Insurance. Term life insurance is straight-forward insurance with a low premium when compared to the amount of coverage purchased.
When planning to purchase life insurance, you first need to determine how much life insurance coverage you need. The short answer is that you need enough life insurance coverage to allow your family to continue their current standard of living in your absence.
An effective way to reduce taxes on your life insurance is to name your spouse or one of your children as the policy owner. If you do, the proceeds will be immediately payable to them or anyone they designate. With this setup, the life insurance policy isn't subject to federal estate taxes.
I simply cannot stress this point enough: Life insurance proceeds paid to a beneficiary are exempt from income tax!
There may be several payout options for your life insurance proceeds, including a lump sum or periodic payments over the course of several years.
If you decide on periodic payments, a portion of each check will include interest on the principal amount left with the insurance company. The interest portion of the proceeds is taxable.
Life insurance is essential for your family's future protection. Just remember that your beneficiary will never have to pay income tax on it regardless of the size of the estate!
About the author: Maurizio Bisogno is an IT Professional and author.
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