While life insurance may not be the most exciting topic, it’s one that you should know about if you have children or a spouse, or anyone else who relies on your income. It’s important to educate yourself on the advantages of having life insurance so that you can make an informed decision about protecting your family’s financial future. Here are 10 life insurance advantages you might not know about.
10 Life Insurance Advantages
1) Provides Financial Protection
Life insurance is a financial safety net for you and your loved ones. It assures that you and your loved ones are always supported financially. Everyone should have at least some life insurance coverage, regardless of age or health status, to give your family financial support in case of an unexpected tragedy.
Life insurance provides many advantages including protection from high medical costs associated with a serious illness or accident. The death benefit from a life insurance policy can also help finance funeral expenses, leave money for beneficiaries, pay off debts and provide cash to keep up with mortgage payments or other bills.
2) Gives Peace of Mind
The biggest advantage of life insurance is that it allows you to know that your family will be provided for even if you’re not around. Without a policy, your family would have to scramble to find ways to make ends meet; with a policy, they can rest easy knowing that they are financially protected.
Even better: some policies include what are called living benefits which allow you or your beneficiary to receive cash payments while you’re still alive. For example, if you were covered by a living benefit and suffered from a long-term illness, it might be possible for your monthly premiums (and any interest earned on them) to be given directly back to you rather than remaining in an investment account until your death.
3) Reduces Estate Taxes
Life insurance is a common way to reduce estate taxes, which are charged when you pass away. When calculating your net estate, any life insurance death benefit will be subtracted. This means that if you have $100 million in assets but have already paid out $20 million in life insurance claims, your estate tax would only be calculated on $80 million of assets. Talk to an advisor about how much coverage you’ll need and what strategies can help you maximize your tax benefits.
4) Offers Cash Value Growth
The most obvious advantage of life insurance is its death benefit, which provides cash to your family in case you die. But it also has a living benefit. That’s because even if you never die, it offers two other benefits: cash value growth and tax savings. As a result, a good policy can be an extremely wise investment—no matter how old you are or what stage of life you're in.
Life insurance not only protects your loved ones; it also safeguards your finances from inflation and allows for tax savings on investment income that would otherwise be subject to taxation at ordinary income rates when used for non-tax advantaged purposes such as paying off credit card debt or covering school expenses and emergency costs.
5) Can be used to Pay Medical Bills, College Tuition, Funeral Expenses
After a death, life insurance pays for medical bills and other final expenses. When an insured person passes away, his or her life insurance money can be used to pay for funeral costs, mortgage payments and even things like college tuition.
It’s one of many reasons that it’s such a smart idea to keep paying your life insurance premiums after you retire; if you don’t do so, your beneficiaries won’t receive those benefits! Life insurance is one of the only financial instruments you can use to financially support people long after your death. If someone makes it through college but continues to struggle financially long after graduation (say, because they lose their job), life insurance is there to help them out.
6) Helps with Long-Term Care Costs
If you have serious medical conditions that require long-term care, long-term care insurance can help pay for these costs. The average cost of a private room in a nursing home is $75,000 per year. With long-term care insurance, you can get coverage to protect yourself from these costs and ensure that your family is financially protected.
It’s important to keep in mind that long-term care insurance doesn’t cover custodial or personal care; it only covers medical expenses related to nursing home care and assisted living facility stays. Long-term care includes assistance with eating, bathing, dressing, taking medication and moving around within your residence.
7) Can be Transferred to Descendants
If you were to pass away, life insurance can cover many expenses your family would otherwise have to shoulder. Depending on which type of life insurance you choose, death benefits can be paid in a lump sum or in installments for years after your death. It is important to note that life insurance should always be purchased through an agent or broker who is licensed by your state and will work with you to help tailor it to fit your specific needs.
They’ll help ensure that what you purchase is right for you and make sure everything gets taken care of when it comes time to claim it. Ask any questions before signing a contract or finalizing any decisions—and don’t be afraid to seek out additional information if you aren’t clear on anything!
8) Is an Investment Tool
Life insurance doesn’t have to be thought of as just a safety net for your family. It can also provide significant financial benefits for your heirs in terms of estate and tax planning, investment opportunities, and debt financing. To get a handle on all of life insurance’s advantages, you first need to understand what life insurance is: A contract between an insured person (you) and an insurer (an insurance company).
The insurer agrees to pay out a sum of money if something happens to you—the insured—and that sum is called your death benefit. The life insurance policy itself isn’t an investment tool, but it does offer some great ones. There are two main types of life insurance policies: term life and permanent life.
Term life is temporary coverage that only lasts for a certain amount of time—usually 20 or 30 years—and pays out only if you die during that period; permanent life provides lifelong coverage but typically costs more than term life and may come with additional features such as cash value or dividends. Regardless of which type you choose, both types allow you to invest premiums into sub-accounts like stocks, bonds, mutual funds, and other securities.
9) May Provide Investment Tax Benefits
A life insurance death benefit typically provides income tax advantages when you use it to pay off non-deductible debts. For example, if you borrow money for a business or home and pay interest on that loan, a life insurance death benefit may provide an after-tax means of repaying those loans. It can be a great way to reduce your overall debt load and save on taxes in the process.
Life insurance death benefits are also a valuable retirement resource. If you take out a policy with cash value, and use that policy to invest in stocks, bonds or mutual funds, you can avoid paying taxes until you withdraw money from your investment account.
Furthermore, if your investments generate capital gains or dividends over time, those earnings may be tax-deferred until you withdraw them as well. In addition to tax advantages, life insurance death benefits offer peace of mind for your loved ones because they know that their needs will be met even after you’re gone.
10) Maintains Financial Flexibility
With life insurance, you can choose a plan with a living benefit, which allows your beneficiaries to use it as they please—whether that's covering living expenses or paying off debt. This gives you and your family financial flexibility in case of an emergency. Plus, depending on your policy, your loved ones may have access to additional resources like long-term care or funeral expenses. With comprehensive life insurance plans, you can be sure that you're always protecting yourself and those who matter most.
5 Advantages and Disadvantages of Life Insurance You Must Know
How important is life insurance? When should you buy it? Do you need to buy it right away? We’re going to answer all of these questions and more by exploring the advantages and disadvantages of life insurance. Let’s get started!
1) An easy way to protect your loved ones
If you’re reading this, chances are you know exactly how important it is to have some sort of life insurance in place. But maybe you haven’t considered which type makes sense for your situation. After all, there are a variety of policies out there—term life insurance, whole life insurance, universal life insurance—and each comes with its own advantages and disadvantages. Let’s take a look at five advantages and disadvantages to think about before choosing a policy
2) Easy access to long-term care
This is one of life insurance’s main advantages. Without an adequate amount in place, you could risk requiring expensive long-term care that you can’t afford. The nice thing about life insurance is that it allows you to take care of loved ones after you're gone without causing them undue financial stress.
Long-term care in your 60s and 70s can be tens or hundreds of thousands of dollars per year, depending on how long you require it. For example, around $55,000 a year for two years is what Medicare would cost if your medical needs were very basic—and if they aren't (home health aides or nursing home care) costs are much higher.
3) Guaranteed death benefit
While it may seem morbid, life insurance provides a guaranteed death benefit if you pass away during your lifetime. Your beneficiaries will be guaranteed a payout even if you die without a will in place. This means that a piece of mind is available to your family, no matter what happens.
If they need money to pay their bills or even their debts upon your passing, they can rest assured knowing that help is coming – just as long as you're insured. And although some people shy away from buying life insurance because they think it's not worth investing in when they are young, remember that younger people are statistically more likely to die at younger ages.
4) Protection against inflation
With inflation on an upward trajectory, many financial advisers recommend investing in life insurance as a way to protect against currency depreciation. For example, if you need $400,000 to pay off your mortgage when you die and one year later inflation is 10 percent, then that same $400,000 will be worth only $360,000 at year’s end. A life insurance policy can help offset those losses.
5) Flexibility in designating beneficiaries
A flexible life insurance plan allows you to change your beneficiaries at any time. This means you’re not stuck with a life insurance policy tied to someone who may no longer be in your life.