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Major Advantages of Life Insurance
Have you considered taking out a life insurance policy, but aren’t sure how it could benefit you or your family? Here are some of the significant advantages of life insurance and why you should be considering it.
Life insurance is one of the pillars of a healthy personal finance portfolio. It’s vital for most households but, due to confusion and skepticism, most people never even consider it. These days, however, it’s very easy to find something that suits your needs and will support your family if you pass away early. Now you can get quality, cheaper life insurance than ever before. It’s the best time to ensure that your household won’t be facing problems should something happen to you
Maybe life insurance is too complicated for most people with busy lives to sit down and try to understand, or maybe we just have a hard time coming to terms with our own mortality. Either way, we don’t talk about life insurance enough.
When you arm yourself with the right information, you can make the decision-making process simpler and come to the right conclusion for yourself and your family. To help make this process a little easier, we’ve written this guide on the advantages of life insurance you might be surprised to know.
You Probably Need Life Insurance
If you have a spouse or children, it’s practically obligatory for you to have life insurance. In the event of your death, you want your family to have a little bit of money to fall back on in the place of your monthly income. This is pretty commonly known.
However, this isn’t the only time you need life insurance. If you are an ex-spouse, a life partner, a child of dependent parents, the sibling of a dependent adult, an employer, or a business partner, you should still give life insurance a thought.
If you are a stable, retired, financially independent adult, and you can see no way that anyone would suffer financially in the event of your death, you don’t need life insurance. But life insurance can still be a strategic financial tool.
It’s Not a Price Tag on Your Life
Life insurance doesn’t attempt to put a monetary value on your life. It actually helps compensate for the financial loss that comes with the loss of life. It helps those that are left behind deal with the final expenses, outstanding debts, mortgages, educational expenses, and lost income.
But, more importantly, in the event of an unexpected death, it lessens the financial blow when surviving family members are dealing with the loss of a loved one. Life insurance also provides valuable peace of mind for you, the policyholder. This is one of the reasons that life insurance is so important for working adults in a family but also stay-at-home spouses.
There are Four Roles in the Policy
There are four primary players in every life insurance policy. They are the insurer, the owner, the insured, and the beneficiary. The insurer is the insurance company. This company is responsible for paying out claims when the insured dies.
The owner is the person responsible for paying the premiums on the life insurance company, and the insured is the person on who the life insurance policy is based on. The beneficiary is the person, trust, or entity that will receive the life insurance claim, or death benefit when the insured passes away.
Risk Management, Not Investment
There are some life insurance policies that have an investment feature. These policies offer a degree of tax privilege, but that doesn’t make insurance a great investment. Usually, there are better ways to invest money, if that’s your goal. If you haven’t filled your emergency cash reserves, paid off your non-mortgage debt, maxed out your 401k or Roth IRA, contributed to an education savings plan, and set money aside for large purchases, then you probably don’t have to worry about investment life insurance policies. Focus on those other things first.
Term vs. Permanent
Term life insurance is the simplest and the least expensive kind of life insurance. With term life, a company bases the premium on how likely it is that the insured will die within a specific term, usually 10-30 years. The premiums are guaranteed for the entire length of the term.
Permanent life insurance has the same probability of death calculation, but it includes a savings mechanism. This is referred to as “cash value,” and it’s designed to help the policy exist in perpetuity.
Life insurance can be very expensive or surprisingly inexpensive. If you shoot for a policy with all the fancy trimmings, the size of the premiums alone might give you a heart attack. However, most people are surprised when they see the low premiums of basic term policies. A healthy, non-smoking male in his 30s might pay less than $500 per year for a 20-year term policy with a million-dollar death benefit.
That same person would need to pay 10 or 20 times that for a variable or whole life insurance policy with the same death benefit. And while a term vs. perm comparison is like apples vs. oranges, in the time of need, your family will care mainly about the death benefit. A smoker tends to pay twice as much, and someone with health problems might be charged more than triple, or be denied outright.
Advantages of Life Insurance
There are ten major advantages of life insurance.
- Life insurance gives a large lump sum of cash to someone dealing with the negative financial aftermath of a death.
- Life insurance typically has tax benefits.
- Death benefits are, for the most part, income-tax-free to the person who receives the money.
- Death benefits can be estate-tax-free if the policy is properly owned.
- Cash values grow tax-deferred during the lifetime of the insured.
- Cash value withdrawals up to the total premiums paid are usually income-tax-free.
- Policy loans are income tax-free.
- A life insurance policy could be exchanged for another life insurance policy without getting a tax penalty.
- Policies can be very flexible with adjusting to the policyholder’s needs.
- A cash value policy has assets backing the funds that are held in longer-term investments, making the return higher.
There are a few disadvantages, of course. For example, if you pay term life insurance and the insured doesn’t pass away, you lose your money. However, that’s kind of a good thing, right? It means the insured is still alive.
If you’re not sure how to navigate, or if you just need someone to walk you through the important decision of life insurance, contact LifeNet Insurance Solutions.
The Wrap Up
It’s hard to doubt the advantages of life insurance even when weighed against the disadvantages. The bottom line is: if you have someone in your life who would suffer financially if you passed away today, you need life insurance. It’s worth it. If you want to read more life hacks, visit our blog today!