When it comes to safeguarding the financial future of yourself and your loved ones, life insurance plays a crucial role. We will spend some time looking into the benefits of life insurance and charitable planning. We will start today with term and final expense insurance. Among the various types of insurance available, term insurance and final expense insurance are two popular options that serve different purposes. We will delve into the distinctions between term insurance and final expense insurance, helping you to make a more informed decision based on your specific needs.
Term Life Insurance:
Term insurance is a type of life insurance that provides coverage for a specified period, typically ranging from 10 to 30 years. It is designed to offer financial protection to your beneficiaries in the event of your untimely demise during the policy term. If death occurs within the specified timeframe, the insurance company pays out a death benefit to the designated beneficiaries. It should be noted that a charitable organization can be designated as the beneficiary or one of several beneficiaries.
One of the key advantages of term insurance is its affordability compared to other life insurance options. Since it offers coverage for a specific period, usually during the years when financial liabilities are high, term insurance can be a cost- effective choice for families or individuals who need coverage for a limited period. This type of insurance is particularly beneficial for those with mortgages, dependents, or outstanding debts, as it ensures their loved ones are financially protected during the specified term.
However, it’s essential to note that while term insurance provides a death benefit, it does not offer any cash value or investment component. Once the policy term expires, the coverage terminates, and the premiums paid are not returned. There are, however, Return of Premium products available. You will receive all your premiums back at the end of the term. It is higher in cost than conventional term. Term insurance is solely intended for protection against the risk of premature death, making it an ideal choice for those seeking affordable coverage for a specific period while they work to build their financial security.
It should be noted that over 90% of term policies are never paid out in a claim. Most people outlive the term and the policy expires. At that point, they either need to get another policy at higher cost or go without a policy altogether. If
another policy is not purchased it is hoped the clients have put themselves in a position where a policy is not needed and other provisions for charitable giving and lifestyle have been implemented.
Final Expense Insurance:
Final expense insurance, as the name suggests, is designed to cover the costs associated with one’s funeral, burial, and other end-of-life expenses. This type of insurance is often purchased by individuals who want to alleviate the financial burden on their family, ensuring that their loved ones are not saddled with these final expenses. Final expense insurance policies are usually available with lower coverage amounts compared to term insurance, focusing on the costs related to a person’s final arrangements instead of providing a large death benefit.
One of the significant advantages of final expense insurance is its ease of eligibility. Typically, these policies do not require a medical examination, making them accessible to individuals with pre-existing medical conditions or those who may have difficulty obtaining other forms of insurance coverage. However, it’s worth noting that the premiums for final expense insurance tend to be more expensive. Most forms of Final Expense Insurance are permanent insurance. Most will be either Whole Life Insurance or some form of Universal Insurance and will build a cash value. As with term policies, all or a portion of the death benefit can be designated for a charity.
Since our area of focus is charitable planning, the question arises regarding tax deductibility. Generally, the premiums are not tax deductible to the donor. There are cases where it can be with proper estate planning and additional cost. The beneficiaries, however, receive the proceeds tax free if taken as a lump sum.
In summary, we can the leverage the impact of our giving through life insurance. We can give more to God and to missions using the power of life insurance.
Please note: All charts and numbers are for illustration purposes only. Accuracy is neither warrantied nor implied. We are not attorneys or tax advisors. This information is educational only. Not to be considered as advice or recommendations. It is imperative that you consult with a tax advisor and/or attorney when considering any of these concepts. In addition, it is critical that the attorney, tax advisor, and financial advisor are knowledgeable and practiced in these areas.
If you would like help finding such an advisor, we will be glad to introduce you to an experienced planner with your best interest in mind. Please give us a call at 1-800-522-4324.