The Benefits of a Good Life Insurance Policy
Most people don’t fully understand the life insurance benefits that they can receive by purchasing a policy. Many who are engaged in financial planning consider purchasing a life insurance policy at some point, but don’t truly understand how it works. Read also: What To Know About Life Insurance Beneficiaries.
If you are on the fence about whether you need life insurance, here are some of the life insurance advantages that you should consider:
- Help with final expenses
- Replace income
- Build cash value
- Possible tax-free retirement
Handle Final Expenses
When you pass away, your family may have to worry about some final expenses. For example, the family may need to pay for a coffin, burial clothes, a cemetery plot, preparation, and a lot of other expenses. These items can really add up, and most people don’t just have this sitting in a bank account to write a check with. With a life insurance policy, your beneficiary can receive enough money to pay for your final expenses, so that this is not an unfair burden that they have to deal with. According to the LIMRA International, approximately ten percent of families with kids under the age of 18 don’t have life insurance. Read also: Your Guide to Understanding the Life Insurance Underwriting Process.
Another one of the major life insurance benefits is the ability to replace income. If you are the primary income earner for your household, then your death could be devastating for the rest of your family financially. With a life insurance policy, your family can replace the income that was lost when you passed away. With a typical life insurance policy, you can replace several years of income, so that your beneficiaries can figure out some other means of earning income. According to LIMRA International, the average husband has an insurance policy that will only replace approximately 4.2 years of income. This means that most people don’t buy policies that are big enough to cover their income replacement needs.
Build Cash Value
The ability to delete cash value is another one of the most prominent life insurance advantages to be aware of. If you choose to buy a whole life insurance policy, part of your premium payment will go into an investment account. The investment account will be managed by professional money managers who will invest that money and earn a return. The cash value in your policy grows over time. You can then access this cash value whenever you want. If you want to keep the policy in effect, you can access the cash value by using a life insurance policy loan. You also have the option of getting the cash value when you cancel your policy. Read also: Guarantee Your Retirement Income With a Life Insurance Annuity.
One of the lesser known life insurance benefits is that it can actually provide you with some tax benefits when engage in financial planning. Many people use life insurance as a retirement planning tool. For example, they may buy a variable universal life insurance policy which allows them to invest into the cash value and grow it over time. Then when they reach retirement age, they can take money out through a policy loan without having to pay taxes on the loan. They then have to make nominal payments back to the life insurance company to satisfy the terms of the loan. By using this strategy, you can create a tax-free retirement income that will be there for you when you need it.
Overall, life insurance is a type of policy that you need to have if you have beneficiaries that need to be taken care of. If you are married with children, it is essential to have some kind of insurance policy in effect. Don’t allow your family to be one of the 26 percent of families that only have enough money to pay the bills for a few months after an income earner dies. When you are in the market for insurance, look at several different policies to make sure that you get the benefits you truly need. Read also: Why You Need Mortgage Life Insurance.