How to protect your family from financial ruin in the event of your passing

If anything is uncertain in this world, it is life itself. One can be here this moment and in the next he can lay on the ground, breathless and still; death can come so swiftly. It need not be heart attack or similar ailments; a fall down the stairs, a car accident or a bomb thrown aimlessly by some lunatic can also see you through. Such an occurrence may spell doom for your family, especially if they are yet to become self-sufficient. That is why it is time to find out how to protect your family from financial ruin in the event of your passing.

One of the ways you can do that is to buy adequate amount of life coverage. There are quite a few types of life insurance policies available today. Some are quite affordable, but such policies provide nothing but death benefit. There is no accruement of any cash value in such policies and therefore, there is no return unless the insured dies. The term life insurance is one such policy. It is valid for a set term and the coverage is offered at a very low rate because unlike other policies, the premium you pay is used entirely to develop the death benefit.

However, it will be better if we start from the very beginning. All life insurance policies can be divided into two categories:
•    Temporary term life insurance – As we have already discussed, such policies are more affordable than other category is; but it provides the coverage for a limited period only. Moreover, it does not accrue any cash value and so if the insured outlives the term, he does not get any return for the money he has paid.
•    Cash value policies – Whole life, universal life, variable universal life, limited pay policy, endowment policy are some such policy. In general, such policies valid for the life of the insured; as a result, whenever the insured dies, the beneficiary is sure to get the benefit. What is more, they always grow a cash value using a part of the premium you pay. Consequently, if you outlive the need for insurance, you can surrender the policy to take out the accrued cash value.

Most of us naturally opt for the later category of life coverage. Apparently, that makes more sense. However, all that is apparent. If your aim is to provide adequate death benefit at affordable rate, go for the term life insurance only. It is true that such a policy is valid for a limited term only, but if you come to think about it, nobody lives the coverage for the whole life. Those who buy any of the permanent policies, cash it out after stipulated period only. Remaining covered until you are sixty-five should be more than enough.

That takes us to the next point. It is true that the term life does not accrue any cash value and so unless you die within the stipulated term, no return can be expected. This point does not stand scrutiny. The cash value policies provide an investment opportunity because you pay for it. Note that the cash value is accrued separately from the death benefit by using a part of the premium you pay. However, you will never get both of tem together.

If you die while the policy is in force, your beneficiary will get only the death benefit and the cash value grown separately by using a part of the premium you have paid will be kept back by the insurer. If you on the other hand, surrender the policy while you are still alive, the insurer will release only the cash value and the death benefit will be kept back by him.

That is why life insurance experts often advise you to buy a term life for pure life insurance coverage and then use the difference in the rate to develop your capital. This way, if you die, your beneficiary will get both the death benefit and the capital developed separate from it. However, for that you need to be financially disciplined and invest regularly. If you are not that, a cash value policy offers some compulsory investment opportunity.

It is not enough to make the right investment. It is also important that your beneficiary know about that. Besides, if your spouse is not adept in money matters, it is important that you make her aware about it because she is going to receive the amount in lump sum and will need to invest it properly so that she gets a decent monthly income. Therefore, to protect your family from financial ruin in the event of your passing, you will need to do more tan just buying a suitable policy.