What happens when a family of four suddenly dies from an unexpected heart attack? In addition to emotional confusion, the rest of the family can face financial stress unless they have life insurance. One of the greatest benefits of life insurance is financial protection for your loved ones.
While working in the financial services industry, I saw a very similar unfortunate situation unfolding where a family’s earner suddenly died.
Of course, there is no replacement for the lost family, but the money from life insurance helped the man’s wife and two young children to have financial security. It gave them the space they needed to grieve. And that’s just a small part of the benefits of life insurance.
No one wants to think about their deaths, but it’s a part of life. Planning your life insurance in advance can help your loved one overcome financial obstacles when you pass. And some insurance can also provide you with living benefits. You will dive in to learn more about the benefits of life insurance and how to assess your life insurance needs.
Life insurance benefits
You probably know how important life insurance is to women, but understanding the complex benefits and disadvantages of life insurance is still a good idea.
In most cases, the benefits of life insurance outweigh the disadvantages. Let’s take a closer look at the clear benefits of life insurance.
Help protect your loved ones
Life insurance is an important part of your estate planning checklist. One of the greatest benefits is the financial protections you provide to your loved ones in the event of death.
Imagine what would happen to your family if you weren’t around to take care of them. Depending on the situation, your loved one may be quickly tied up without your financial support.
Unfortunately, it can lead to additional stress as it navigates emotionally challenging times without you. The financial support provided by insurance will help your family stay on track. Your thoughtfulness continues to help them to sadden and offer them beyond that.
Additionally, payments from insurance policies can help families stay ahead of the financially.
For example, your policy may be able to cover the cost of your child’s university tuition fees.
peace of mind
Do you have dependents who rely on you to support their financial needs? If so, it may be easier to see the benefits of life insurance, such as offering an exchange of income if you die.
You protect your peace knowing that your family will be taken care of financially even after you are gone. The simple fact that your family finds financial help is enough to make everyone feel more comfortable.
Funeral costs can be covered
No one really wants to think about their funeral. However, one of the main benefits of life insurance is that it can cover expensive funeral costs.
The median cost of a burial funeral in the United States is $8,300! It’s a lot of money that can help your family when they need it.
Provides potential tax benefits
Some of the benefits of life insurance are not directly related to insurance policy payments. In other words, many life insurance plans offer tax benefits to policyholders and beneficiaries.
Once the insured dies, the beneficiary will be able to receive a tax-exempt lump sum payment of the life insurance death benefit. It helps you to make money even more when you cover the costs, without having to pay taxes on large amounts of cash.
Policyholders can also benefit from life insurance through tax deferred cash value. A permanent life policy that includes a cash value component allows policyholders to save some of their premium payments into a cash value account. Money in this account usually earns interest (or investment return) over time.
However, policyholders do not have to pay taxes on their revenues until they withdraw funds.
Build generational wealth
The most basic use of life insurance is to provide financially to your loved ones after you are gone.
For example, a policy may help replace your income. This will allow your partner to pay mortgages and other ongoing bills in the future.
However, you can also use life insurance to build long-term wealth for your heirs and build generations to come. A proper life insurance plan can provide the windfall you need to begin the process of building generational wealth.
Generational wealth refers to assets that go from one generation to the next. These assets continue to grow over time, providing a greater financial safety net for each future generation.
Let’s say you have life insurance with enough death benefits to invest in the remaining mortgage balance. When you pass, your beneficiary will pay back the house.
Now they have debt-free housing and can spend more money on savings and investing. As they pass by, their children inherit the home and considerable savings. Children borrow homes for additional income and continue to invest their savings.
May provide lifestyle therapy
Many life insurance companies allow you to easily adjust your life insurance to suit your needs through your rider. Riders, also known as policy approval, are optional coverage that can be added to a regular policy.
Riders can increase their life insurance benefits, but adding riders generally increases premiums. Insurance riders are the most common in permanent life insurance, such as life insurance.
Some of the most popular insurance riders are known as “living benefits.” Life insurance is designed to provide financial support to loved ones after you die, but living benefits riders allow you to use your policies while you are still alive. Typical living benefits riders are:
Acceleration of death benefits
The rider will grant policyholders a portion of their death benefit if diagnosed with terminal illness and reduced life expectancy, and can be used for medical and related expenses.
Serious illness
This approval pays the policyholder a lump sum payment if a condition specified in a policy, such as cancer or heart attack.
Chronic disease
Chronic disease riders can help policyholders pay for nursing care if they are diagnosed with a chronic disease that impairs cognitive function or two or more daily life (ADL).
Long-term care scope
This type of rider can help cover the long-term care costs, such as living in nursing homes and assisted living facilities.
Premium Waiver
This approval waives future premium payments if the policyholder becomes physically disabled or extremely ill.
Although less common, some terminology policies offer policyholders living merit riders.
For example, you may be able to add terminally ill riders to your terminology policy.
Cons of life insurance
There are many advantages, but let’s dive into some of the drawbacks that will help you decide which one is best for your situation.
Certain policies cost a fee
In the long run, the benefits of life insurance are great for your family.
However, some insurance may be costly depending on the type of life insurance you get. That’s why it’s important to assess your needs to determine which one is best for you and your family.
For example, I generally recommend that people looking for permanent life insurance consider universal life insurance instead of an all-life policy. This is because when comparing premium dollars with benefits, overall life policy can be more expensive.
Discovering the benefits and disadvantages of life insurance can help you decide on coverage. This saves some money. Make sure to do some research before getting a policy, such as understanding the difference between term life insurance and life insurance policies.
Your age is also a factor in cost. For example, the average life insurance policy for a 25-year-old non-smoker is $31 a month, but for $50, it is $118.
Hidden terms or exclusions
Life insurance is complicated and can be overwhelming if you don’t know what to look for when reading your policy. Some policies may have certain terms or exclusions of what you expect to know.
For example, some insurance companies may be involved in dangerous sports like scuba diving, or if they have health conditions, they may denial you or cost more.
This means that if they offer a policy, they will come at a higher price. Plan to review the policy with your agent and understand exactly what it will cover if something happens to you.
Expert Tips: Minimize life insurance for the duration
Do you think you can’t afford life insurance? Even if you don’t have many assets or dependents, budget-friendly life insurance like Term Life Insurance can help your loved ones cover your final costs if you die. So take the time to explore term life insurance options based on your budget.
How life insurance works
Life insurance is a contract between you and your life insurance company. We promise to pay your premiums during the policy period.
In return, the insurance company promises to pay the beneficiary the face value of the insurance contract if it dies at the time of the insurance contract. Your beneficiary can be a spouse or partner, a child, or even a charity.
There are also two main types of life insurance.
- Term life insurance contract
- Permanent life insurance (including whole body and universal life insurance)
The term policy provides coverage for agreed term, such as 20 years. Your compensation will expire at the end of the year.
Meanwhile, permanent coverage provides insurance benefits for your entire life. The permanent policy includes the cash value component. This will save you a portion of your insurance premiums to your savings account. Some permanent policies may even pay dividends.
Do I need life insurance?
Life insurance has clear benefits, but you may not think you need to pursue this path. Find out more and see if life insurance is in your best interest.
Do you have any dependents?
If you have dependents who are dependent on your income, life insurance is a simple decision. If something happens, you absolutely need to buy a policy that will help protect your spouse and children.
Life insurance is a little more complicated if you don’t have dependents. Some people may be preparing their baby or waiting for their child to get life insurance, but getting it earlier has an advantage, especially if you have a spouse who is dependent on your income.
Do you share your financial obligations?
Measures need to be taken to protect dependents as well as those who share financial obligations. It takes a little time to consider any financial obligations that could be a burden to those you left behind.
For example, many young newlyweds can benefit from life insurance, even if they don’t have children. That’s especially true if they have a significant amount of student loans or need to reduce their credit card debt, which requires them to pay back two incomes. If you leave your spouse early, can they afford the life you built together comfortably?
Beyond the shared debt between partners, you may have a loan that you have co-signed with another family. Without life insurance, if you leave this world unexpectedly, they could be in a difficult situation.
If you have a mortgage, if you die, the best way to ensure that your loved one doesn’t leave your debts may be life insurance. We highly recommend a life policy for periods that cover your mortgage balance. Make sure you have a term of office at least as long as your term is the remaining mortgage period.
Why should I not delay getting my life insurance?
You can easily see life insurance as another expense you don’t want to add to your budget. So it’s appealing to postpone purchasing a policy until it’s absolutely necessary.
However, if it’s too long, it may be too late to help protect your family in the event of unexpected events.
If you want to save money on life insurance, you need to move forward as quickly as possible. From a cost perspective, it makes more sense to buy life insurance while you’re young.
In my experience working for life insurance, even between the ages of 29 and 30, it increases dramatically as you get older! That’s simply because life insurance interest rates are often the cheapest when you are perceived as young and very healthy.
Plus, your money can be better value to buy a policy early in life, as you can lock to a lower rate when you’re still young and healthy.
If you think your family can benefit from life insurance, now is the best time to act. If you determine that life insurance is right for your situation, postponing your purchase could lead to a higher fee.
Delaying your life insurance beyond the cost can have dramatic results for your family if you can’t finalize your insurance if something happens to you.
Is it worth buying life insurance?
Often, yes! One of the benefits of life insurance is that there are different types of policies to choose from. This makes it easy to find a policy that suits your needs and budget.
Life insurance can help families pay and cover funeral costs.
Do you make money from life insurance?
Permanent life insurance has a cash value component that allows you to build cash within the scope of your insurance policy. There are many ways to use cash value, including:
- Supplements to retirement benefits
- As an emergency fund
- Pay life insurance premiums
- Loan collateral
What types of life insurance are available?
There are several types of life insurance, but all categories fall into two categories: term life insurance and permanent life insurance. A period policy provides coverage for a specified time, known as a term. At the end of the period, the policy expires and the insured is no longer covered.
Permanent insurance covers your life and offers you to pay your premiums. The permanent policy also includes cash value options that help you build cash savings from premium payments.
Term insurance is generally cheaper than permanent insurance.
Insurance related articles
If you learn more about life insurance from this article, check out these other helpful reads about insurance!
- Do you really need $1 million in life insurance?
- The importance of life insurance to your finances
- Period life insurance vs life insurance? What’s the best for you?
- What is credit life insurance?
Earn life insurance benefits to ensure peace of mind
Life insurance has its advantages and disadvantages, but it is a great way to protect your loved one from financial stress.
A life insurance policy can help you protect your family from the financial consequences of your death. It can allow them to mourn peace without wondering how they can pay their ongoing bills.
Even if you don’t have dependents or major assets, we recommend considering life insurance as a way to cover your final costs in the event of unexpected death.
Learn more about life insurance with our completely free Life Insurance 101 course! Enjoy the Clever Girl Finance YouTube channel and the Clever Girls Knowed Podcasts.