The Benefits of Life Insurance

Depending on who you talk to, you might get a variety of opinions on the value of life insurance. Because of the variation in opinions, you might be confused if life insurance is a beneficial investment or not. While most people only think of life insurance being beneficial after death, there is actually many ways you can use your life insurance while living. We will cover the ins and outs of both term and whole life insurance to help you understand the benefits of having life insurance

What Are The Benefits of Life Insurance?

There are plenty of debate topics surrounding life insurance, such as which type of life insurance is best, how to set up a policy, how to use your policy, and much more. However, most agree that having life insurance is important for (1) funding a funeral and miscellaneous death expenses and (2) covering any monetary needs the policyholder provides for their family. Yearly income and college tuition are two of the most common expenses policyholders plan to cover with life insurance. 

Within the broad umbrella term of life insurance, there are two main kinds of life insurance policies: term insurance and permanent insurance. There are benefits to each of these types of life insurance policies, and we’ll look at each in more depth. 

The Benefits of Term Life Insurance

Term life insurance involves paying a premium to the insurance company for a limited amount of time. Then when you die, your family will receive a death benefit to help cover expenses. Here are some of the term life insurance benefits: 

  • Term life insurance usually only covers a 10-to-30-year term. This limited term period helps people pay less in premiums. 
  • It is often the cheapest way to get life insurance because of the limited time and lack of cash value. 
  • There are no surrender fees if you can’t afford the policy in the future.

While these benefits can be useful, there are also some disadvantages to term life insurance to know about as well: 

  • There are no benefits while you’re still alive. Term insurance only provides a death benefit. 
  • There is no cash value component. Term insurance does not create cash equity. 
  • Premiums are unaffordable in later years.
  • Term insurance is temporary and will expire.

To learn more about term life insurance, read our article on How Term Life Insurance Works.

The Benefits of Permanent Insurance

There are two main types of permanent insurance sold today. Indexed universal life insurance and whole life insurance, each with its own set of insurance advantages.

The Benefits of Indexed Universal Life Insurance

Indexed universal life insurance (IUL) is a type of universal life insurance that combines a one-year renewable term life insurance policy with a cash account that is tied to an index like the S&P 500. Here are some of the indexed universal life insurance benefits:

  • IUL has flexible premiums because the term insurance premiums may be covered by money in the cash account.
  • The initial cost can be low.
  • There is an opportunity for indexed growth in the cash account if the market does well.

These benefits sound very nice, but unfortunately, there are disadvantages about IUL that can be quite sizeable:

  • The policy is based on term insurance which increases in cost over time.
  • There are often large surrender fees.
  • Earnings in the policy are capped in the cash account.

If you want to dive deep into how IUL works, check out our recent article on How Does  Indexed Universal Life Insurance Work?

The Benefits of Whole Life Insurance

Whole life insurance is the other type of permanent life insurance policy. Whole life is similar to term in that you pay a premium in order to get a death benefit, but there are some other major benefits of whole life insurance: 

  • Whole life insurance includes a cash value component. You’re able to accumulate equity in your whole life policy, as your death benefit becomes paid-up. 
  • The death benefit and cash value in your policy are guaranteed.
  • The cash value accumulated can be used while you’re still alive. This is why whole life is often called life insurance with living benefits. 
  • You can earn dividends that are tax-free.

The cash value of your policy can then be used to finance expenses, help with your income or fund your retirement. Whole life insurance is the best way to provide for your family when you’re gone and build financial wealth while you’re alive. 

Here at Life Benefits, we can help you learn how to use a participating whole life insurance policy to accumulate a high cash value, and we can teach you how to use that cash to help with retirement. 

The Benefits of Life Insurance Riders

In addition to the benefits of term and permanent life insurance policies as they are, you can use life insurance riders to take advantage of even more benefits. Riders provide optional add-ons to a term or permanent life insurance policy. Here are some common life insurance riders and their benefits:

  • Accelerated Death Benefit Rider: This type of rider allows you to use some or all of your death benefits if you are diagnosed with a terminal, critical, or chronic illness. An accelerated death benefit rider often doesn’t increase your premiums, and there are no restrictions on how the funds are spent. 
  • Paid-Up Additions Rider: This type of rider is available with a whole life policy and can increase your cash value and death benefit through compounding values with no extra tax costs.
  • Term Conversion Rider: This rider allows you to convert your term life insurance to permanent life insurance. This is especially beneficial if maybe you couldn’t afford a whole life insurance policy when you first get life insurance but want the option to switch to the more beneficial permanent insurance later on in life. 

Other life insurance riders include disability income rider, waiver of premium rider, long-term care rider, guaranteed insurability rider, accidental death rider, child term rider, and more. The benefits of life insurance riders can differ depending upon each person’s circumstances.

The Bottom Line on the Benefits of Life Insurance

There are many benefits of having life insurance. There are the usual benefits of helping your family after you die, but there are benefits that can help you while you’re alive as well. Schedule a strategy session with us today to discover how life insurance can help you build a financial legacy that will benefit your family for years to come.

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