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The Many Functions of Life Insurance
When Susan's father died in Boston, she was unsure as to what her father's life insurance policy would cover. She had always been confused by these policies, but knew that she should expect some assistance from the policy in paying funeral expenses and taxes.
Life insurance policies are often considered the "cornerstone" of financial planning for individuals. These policies do have many functions after a person's death and all of these functions are designed to make life easier and hopefully cheaper for the survivors of the policy holder.
If family members depend on the person's income, the life insurance policy can become a replacement income for those individuals. This is typically the case in that of parents and their young children. This income is often vital in the case that a person's spouse dies and will be reduced due to the death of that individual.
Another area that life insurance covers is the payment of a person's final expenses. Life insurance can cover the cost of the funeral and the burial. They may also cover the expenses incurred from probate, estate administration, debts and medical expenses that were not covered by the person's health insurance.
Life insurance policies are also a way to create an inheritance. This is done by naming a person as a beneficiary on the policy. When the policy holder dies, that money is paid out to the beneficiaries.
When life insurance benefits are paid, they can be used to pay the estate taxes, or "death" taxes, that must be paid. This prevents the heirs from having to liquidate the estate or take a smaller inheritance.
Life insurance benefits have also been used to make contributions to charities. When individuals make their life insurance policy beneficiary a charity, they are able to contribute a much larger amount than if they were to donate the cash equivalent of their life insurance policy's premiums.
There are various ways in which life insurance policies can be utilized. In most situations they are designed to provide for a beneficiary financially. This is particularly important when young families with children are involved. In the case of Susan's father's death, the life insurance policy can be utilized to reduce the amount of money that the family must come up with for a funeral as well as the payment of Boston, Massachusetts estate taxes and other debts that must be paid.
