The Benefits Of Life Insurance: For A More Secure Future
Written By Matthew Thompson
Sep 14, 2021
5 mins read
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What Are The Benefits Of Life Insurance?
Most people buy a life insurance policy for the security it provides their family after they pass away. However, the advantages of having insurance extend beyond the final payout.
A life insurance policy can also function as an easy-access loan, operate as an alternative savings account, and make planning an inheritance easier. But that’s just the tip of the iceberg! In this guide, we’re going to outline the life insurance benefits you need to keep in mind when deciding on a policy.
Life Insurance Policies Explained
Every insurance policy is different, but the core concept is the same. Life insurance companies pay out a death benefitwhen the policy ends or at the end of the insured person’s life, given that all premiums are paid and kept up-to-date.
How It Works
When you apply for a policy, you’re often required to provide basic information about yourself, such as your gender, age, and health. Your broker, dealer, or agent will then provide an insurance quote based on your answers and desired coverage amount.
Because a life insurance company calculates the quote based on how “risky” an applicant is, younger and healthier customers are more likely to receive lower life insurance premium rates.
Common Types Of Life Insurance
An insurance company may offer different policy types and lengths of coverage to suit varying needs. Most offerings fall into two categories: whole life and term life.
Term Life Insurance
Most insurers offer term life insurance, which provides coverage for a set number of years. When the term ends, a policy owner has the choice of letting the policy lapse, renewing it, or converting it into a permanent plan. Because there are term limits and no cash values, these policies are often significantly cheaper than whole life insurance.
Whole Life Insurance
Also known as permanent life insurance, whole life plans guarantee lifelong coverage as long as all premiums are paid. That means, unlike term life insurance, customers’ death benefits won’t expire at the end of their term. Furthermore, this type of life insurance policy has a tax-deferred cash value component, which functions like a savings account.
Benefits Of Life Insurance
There are a few stand-out life insurance benefits that make a policy worth the money. This section details some of the most significant insurance benefits for families and employers alike.
Peace Of Mind
One of the biggest reasons people get a policy is for peace of mind. When a loved one relies on you financially, it can be stressful to think about how they’ll manage when you’re gone. Your policy will ensure that your dependents will be able to pay their bills and maintain their lifestyles long after you pass.
Lost Income Replacement
Some insurance coverage options can be configured to replicate a loved one’s income stream or double as retirement income. This can be extremely helpful if the policyholder is also the breadwinner of the family.
Beneficiaries usually receive their death benefit payout in a lump sum, but they can also opt to receive money in smaller monthly payouts over a period of time (also called an annuity). This can ease the burden of managing a budget and ease a family into relative financial stability. An annuity can also prevent your loved ones from spending the payout on big-ticket items or for purposes other than those intended.
Easily Accessible Loans
Obtaining a loan can be challenging, but life policy owners might be able to skip the application process altogether. A permanent policy’s cash value account can be withdrawn from when needed at a relatively low interest rate. However, if you fail to pay your policy loans back on time, your insurer will deduct your outstanding balance from your end-of-life payout.
Life Insurance Benefits Are Income Tax-Free
In most cases, a beneficiary won’t have to pay income taxes or estate taxes on a death benefit. However, there are situations when beneficiaries should expect to pay taxes on their payouts.
For example, if a family decides to receive the death benefit in increments over time, they’re likely to be saddled with taxes due to interest. Regardless, each life insurance policy has its tax implications. That’s why we recommend contacting a tax advisor or talking to your life insurance company if you have questions about your policy.
Safety Net For You And Your Loved Ones
Insurance enables you to look after your loved ones even after you pass away, at least in the financial sense. The death benefit can be used to fund college tuition or cover bills that existing health insurance won’t pay for. On top of this, you can also withdraw from the policy’s cash value if you require a long-term loan.
One of the principal benefits of life insurance is how it can be a part of a greater estate or inheritance account. Whether you’ve purchased cash value life insurance or a temporary policy, the payout from your death benefit will significantly increase how much your family receives after you pass away.
However, the benefits of having a policy don’t end with a payout. For example, some families may use policies to move cash value around. This can be incredibly helpful when an inheritance is at risk of hitting the tax threshold for your state.
For Businesses: Employee Benefits
Here’s the truth about job benefits: they’re great at attracting and retaining talent. Employees work better when they know their employers care about them – insurance plans are a great way to demonstrate your willingness to invest in your staff. Happy workers foster a positive company culture, which is a win-win for everyone.
There may also be tax benefits for businesses that provide insurance benefits to their staff. The premiums you pay on your workers’ policies may be deductible from your taxes.
The benefits of having a life insurance plan often greatly outweigh the financial costs of maintaining one. However, the process of obtaining the right life policy can still be complicated. Whether it’s breaking down your insurance quote or finding the right life insurance company for you, it’s always a good idea to reach out to financial professionals to demystify the process.
Contact us at Wesley Financial Group to find out how we can help you achieve financial security for you and your family!