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If you are a responsible parent or currently married, the odds are good that you’ve explored your options for life insurance at one time or another. These insurance policies present a cost-effective protection measure, ensuring that those you care about will be more financially secure if you pass away.
However, in the United States and elsewhere, there are still many people who deem life policies as just another unnecessary expense. After all, if you are young and healthy, why bother? Are they wrong?
This article by Insurdinary discusses some of the benefits you may not want to miss if you’re still on the fence about purchasing life insurance coverage stateside.
The basic mechanics behind a life insurance policy are simple—you purchase a policy, pay a monthly premium, and if you pass away while the policy is active, the insurance company will give your beneficiaries the agreed-upon death benefit.
While the concept isn’t complicated, it’s true that your death benefit coverage will vary with each company and each type of policy you take out, often significantly. The main components of your insurance policy will remain the same, though.
Here are a few terms to remember while you research the best insurance policies:
Providers sell several kinds of life insurance and add-ons. You can typically divide life insurance into four main types as follows:
With term life insurance, you pay a monthly premium, and the insurance company pays your beneficiaries a death benefit in the event you pass away. Term policies are a popular option because they are low-cost.
The typical term length of a term life insurance policy is 20 to 30 years, but you can find policies for 5, 10, or 15 years. Once this term expires, the insurance provider may allow you to renew.
Note that since many term policies require a medical exam during the application process, the earlier you buy a term policy, the more likely you are to lock in an affordable life insurance premium. Life Happens reports that, as of 2023, a healthy 30-year-old in the United States could expect to spend less than $20 a month on a 10-year $250,000 term policy.
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Whole or permanent life insurance does not expire. As long as you continue paying the monthly premiums, your coverage remains until you pass away.
Besides its longevity, whole life insurance also has a cash investment component. Every time you pay a premium, part of that payment goes to an investment account, which accrues interest. It’s also one reason why permanent policies are usually more expensive than term policies.
You shouldn’t miss the fact that this cash value component grows tax-free. It’s a useful financial vehicle for wealth generation, including collateral for tax-free loans. Note that your policy’s beneficiaries will inherit the cash value component, but only after repaying any loans you’ve taken on it.
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As most term and whole life insurance policies require medical exams with your application, you may not qualify if you’re a high-risk candidate. Are you in poor health or struggling against a chronic condition? Consider simplified life insurance, which doesn’t require a medical exam.
Simplified policies mean that getting life coverage plans is still possible if you have a condition that excludes you from a traditional policy. The insurance company will be taking on more risk, so expect higher premiums and lower death benefits. Still, you can often get coverage in as little as a few days.
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Even though simplified policies don’t have a medical exam, there’s still a medical questionnaire. If you want more privacy, guaranteed life insurance doesn’t have this exam or prying personal questions about your health.
The idea is that guaranteed coverage is an option if you are not eligible for simplified insurance while understanding that these policies include high premiums and low payoffs to balance the insurer’s risk.
Most guaranteed policies also have a waiting period before the policy will pay out death benefits. If you die during the waiting period, the insurance company won’t pay the benefit. However, it usually returns any premium payments plus interest to the beneficiaries.
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The truth is that life insurance can be a smart decision no matter where you are on your journey. Here are just a few of the reasons why:
Life can throw curve balls, and if you are not around to provide money, your family might have difficulties managing. So, the main reason to purchase any insurance policy, including life policies, is financial security. Coverage offers you peace of mind, especially over family insurance protection if something happens to you.
Financial security is especially important if you have long-term dependents, such as a disabled spouse or children. With life insurance, you take care of their needs.
Are you a breadwinner? There won’t be an income to rely on if you pass away. Today, your income needs to cover things like mortgage payments, food costs, clothing, and any other living expenses, and this won’t change when you’re no longer around.
Would you like your family to continue the quality of life they currently enjoy? Even if you are not the sole income earner of your home, a life insurance policy can make sure that family members can manage expenses when you are gone.
Yahoo’s financial experts report that 60% of adult Americans have debt. If you’re one of those people, and you pass away, your creditors will collect from your surviving spouse or family members. Can they carry that burden without you?
A life insurance policy could help your loved ones pay off any creditors. In fact, many life insurance policies specifically offer a credit coverage option for business or personal loans and credit card debt (this doesn’t cut into the main death benefit).
If you have children, no doubt you’ll want to secure their educational future. At the time of the Education Data Initiative’s 2023 report, the average 4-year university in the US was just over $26,000 per year. Why not use the death benefit and other financial benefits from your life insurance policy to pay for education by setting up a trust or a 529 account?
Interestingly, the Bureau of Labor Statistics tabled a comparison, also in 2023, of the take-up rates for life insurance across citizens, private institutions, and government organizations. The only sector with 100% take-up (access to life insurance and a decision to purchase it) was educational services, so it seems that getting insurance is indeed a smart move. In a world where college expenses are rising, a life insurance policy can ensure your children’s future.
When a person passes away, managing their estate can be a lot of work for any surviving heirs. They must settle taxes, debts, and other payments. Could your death leave your loved ones with an expensive bill to manage your estate?
Payouts from life insurance policies can cover any additional expense incurred during estate settlement. You can also specify in your will that a portion of your life insurance payout covers estate taxes, so you can pass on the majority of your assets to surviving family members.
The final benefit of life insurance is an underrated one: the potential for easier investments and retirement planning. For example, the cash value component of whole life policies accrues interest tax-free. Why not use it as an investment vehicle for retirement and other expenses?
If you pass away before you secure enough financial assets for retirement, a life insurance policy can pick up the slack. More generally, life insurance diversifies your investment portfolio and makes your long-term financial planning more efficient and predictable.
Life insurance can get a bit complicated, so take a moment to read through the following common questions about life coverage:
Shopping for life insurance shouldn't be time-consuming, confusing, or daunting. With Insurdinary's extensive network of partners and wealth of knowledge in various insurance types, including life insurance, finding the right coverage for you and your loved ones becomes streamlined and accessible. Remember, life insurance is not just about financial protection; it's about securing peace of mind and ensuring your family's future well-being. So, don't delay—investing in life insurance today is a crucial step towards safeguarding tomorrow. Let Insurdinary be your trusted guide on this important journey.