According to Bankrate, over 54% of Americans have life insurance. While stable, this figure indicates a downward trend in the number of people applying for life insurance. Policy Genius shows that Americans purchased 27.80 million policies in 2018. This is much lower than in 2001 when life insurance purchases numbered 40.1 million policies. Let’s take a look at these issues to see if life insurance is a worthwhile investment.
The Issue of Affordability
For the most part, not everyone thinks they can afford life insurance. Citing the increasing cost of living and other factors, some may think of life insurance as an unnecessary expense. However, getting one can be an effective hedge against financial uncertainty.
Not only does it serve as a source of reserved funds, but life insurance also covers financially-disruptive situations like unemployment, sickness, and death. Ultimately, getting a life cover ensures that you will have something to leave for your loved ones to inherit.
When it comes to the cost of getting life insurance, Nerdwallet says that people can avail of life insurance covers for a monthly minimum of $27. This is applicable for a 20-year term life policy valued at $500,000, but the rates will vary depending on factors like your monthly income, the size of your family, and lifestyle.
Anyone can afford life insurance; It’s just a matter of looking for the best policy provider. However, there is still the issue of taxes to be imposed upon your beneficiaries receiving the proceeds of your life insurance. This is another issue that makes people want to opt-out of life insurance. Since the proceeds from the policy go directly to their loved ones, then this falls under taxable income, and beneficiaries won’t get to enjoy the full amount.
This is not always the case. Inherited proceeds are subject to special taxation rules. It’s knowing these rules that allow your beneficiaries to enjoy the wealth you are leaving behind and without legal complications.
“Is My Life Insurance Taxable?”
According to the Internal Revenue Service, the money that beneficiaries receive is not taxable income, so they are not required to pay a single cent to the government.
However, there are cases when benefits received from a life policy are taxed. Under IRS rules, any interest income derived from a policyholder is taxable. In addition, if you decide to direct the proceeds to your estate, then your beneficiaries will need to shoulder the tax obligations.
The good news is that you can reduce the taxes your beneficiaries pay through proper estate planning. This will involve transferring estate ownership to another person, usually a family member. However, there are several legal issues you have to consider before going down this route.
Estate planning can get very technical along the way, so you will need expert advice at every step. Learn more about how we at the Wall Street Financial Group can set you and your loved ones up for the future.
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