Life Insurance
Life insurance proceeds are virtually guaranteed to be paid to the beneficiary, are usually paid within two weeks of a claim being filed, and are generally exempt from the creditors of the life insured. But one of the greatest benefits that life insurance proceeds offer to the beneficiary (the person to whom they are payable) is that they are almost always received tax-free.
The proceeds of a life insurance policy are often used for such things as:
Payment of funeral and other final expenses
Debt repayment
An emergency fund
Provide an education fund for children or grandchildren
Estate liquidity
Income replacement for a surviving spouse and/or children
The most common reason for purchasing life insurance is so debts will be paid off and the surviving family will continue to be supported in the event of premature death. Often a family is financially dependent upon the deceased and unable to generate adequate replacement income on their own. Life insurance plays a major role, because it guarantees that the needed funds will be available whenever the need arises. Life insurance is really the story of income, not insurance money.
There are also reasons to have life insurance long after your dependents are on their own and you
have accumulated adequate assets to support a surviving spouse. Permanent life insurance will provide cash to pay income tax owing, to provide an income without having to liquidate assets when prices may be deflated, and, to provide an inheritance for children who may not be part of a family business, for instance.
Some of the unique benefits of life insurance are:
Payment is made directly to the named beneficiary
Bypass probate – no probate taxes (fees)
Bypass probate – no public record of the bequest
Safe from creditors of the life insured person
Proceeds are generally not taxable