Insurance
What is Life Insurance?
Life insurance pays a lump sum to your beneficiaries when you die. It’s a way to protect the people who depend on your income. The SEC regulates certain types of life insurance, such as variable life insurance and variable annuities, which combine death benefits with investment accounts. Life insurance proceeds are generally received by beneficiaries tax-free.
Selecting a life insurance policy involves determining the appropriate death benefit size (often calculated as a multiple of annual income to cover debt and future living costs) and choosing between term coverage (for temporary protection) and permanent coverage (which includes cash value accumulation).
Quick Facts
PRACTICAL EXAMPLE
An individual earns $100,000 annually and has a $300,000 mortgage. They purchase a $1 million life insurance policy. Upon their death, the insurance company pays the $1 million lump sum directly to the spouse, allowing them to pay off the mortgage and replace lost income tax-free.
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