Acquiring a life insurance policy gives protection to your family and loved ones at the time of your death. On the other hand, life insurance is not required if you have sufficient savings and investments to support your needs and attain financial stability. Having a savings that is equivalent to your death benefit signifies that you are self-insured. You keep the risk that you transmitted to the insurance carrier through the acquisition of the policy. But does this imply that you should cancel your policy?
Getting a policy can be advantageous for you if you do not have savings adequate to pay all your debts and other financial obligations. The process of building up your savings takes years and requires a sizeable input from you and a constant growth rate for your investments. Ideally, an individual no longer needs a policy when they reach their retirement age since they already accumulated sufficient savings for their financial needs.
Essentially, a life insurance is a financial instrument designed to transfer risk to the insurance carrier. The risk of your loss or bereavement is transmitted to the insurance company. The insurer has the capability to cover your family in case you die before you even meet all of your financial obligations. Although term life insurance is a great option in transferring financial risk, it necessitates that you build up the savings on your own in order to compensate your future retirement and other financial commitments. Some life insurance options build savings inside the policy. These types of policies blend insurance and savings. As the savings feature of the policy increases, the proceeds of the death benefit that you would get decreases. These life plans are called permanent life insurance policies, because they are created to stay in effect for your entire life.
Cancelling your policy liberates you from paying costly premiums. You can apportion the money to more important things than premiums. Permanent insurance lessens the amount of money paid to the policy, given that the insurance component naturally drops off as the net amount at stake reduces. There are permanent policies that attains a “paid up” status at retirement or prior to retirement. This simply implies that no supplementary premium payments are made to the policy. The policy keeps on accruing savings, which will equal to the death benefit in the long run.
You may still need insurance policy even if you already accumulated a considerable amount of savings. Terminating your policy means you are losing a very promising estate-planning tool. In addition, proceeds of your policy are given to your heirs or beneficiaries income tax-free. Having a life insurance policy is beneficial since it pays for the taxes on any amount of funds you wish to leave to your recipients.