Is Life Insurance Worth It?

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    Is Life Insurance Worth It? An Objective Look

    Many people consider buying life insurance for the protection it provides, especially as they progress through their careers and start families. Each insurance policy is different, but one basic concept remains the same: keep paying your premiums and the insurance company disburses money to your family in case of your untimely passing (otherwise known as a death benefit). 

    It may sound morbid, but spending on insurance policies benefits a variety of people. But you may be wondering, is life insurance worth it for you? When is life insurance essential, and when is it not? 

    We’ve prepared this guide to help you answer these questions. Read on to find out the basics of life insurance policies, how term life insurance and permanent life insurance works, and other fundamental concepts essential to deciding if insurance would be valuable to you. 

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    Life Insurance 101: The Basic

    A life insurance policy is an agreement between a person and their insurance company that a sum of money will be paid out either upon the insured person's death or after a set period. 

    Here are some basic terms that you’re likely to encounter when shopping for a life insurance policy:

    • Insurer: is the company that provides your life insurance. They are regulated by state laws and may have different requirements based on your location. 
    • Policyholder: is the person or entity (such as a business or organization) that owns the policy. Policies can be held to insure the policyholder or someone else.
    • The insured: the person who is life insured by the policy. 
    • Death benefit: is the amount of money that the insurance company will payout.
    • Beneficiaries: are the people that will receive the death benefit when the insured passes away. The entire payment may go to one person or be split between several people.
    • Policy length: is the time over which the insurer agrees to pay the death benefit. This can be over a fixed period, such as a 10-year term or a 20-year term. A plan may also be permanent, which encompasses the policyholder’s entire life.
    • Premium: the amount paid each month or year while the policy is active.
    • Cash value: is an exclusive feature to permanent life insurance, which acts as a savings component that accumulates over time and can be borrowed from. 
    • Rider: is an add-on that you can incorporate into your insurance plan at an extra cost. For example, an “accidental death rider” may pay out more than a regular death benefit. 
    • Underwriting: is the process that insurance companies use when assessing the risk of insuring an individual. Underwriting usually involves accessing medical records and general family health history. 
    • Accelerated death benefit: is a free policy feature that allows the policyholder to receive some of the life insurance payouts early if they are terminally ill. This is otherwise known as a “living benefit”. 
    • Last conversion date: is the last day a policy can be converted from term life into whole life insurance. 
    • Face amount: is the value of insurance that an individual buys. This total number doesn’t include any riders or extra benefits that might be payable under accidental death or other special provisions. 
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    Types Of Life Insurance

    There are two types of basic insurance policies: term life insurance or permanent life insurance. Term life insurance is the “bread and butter” life insurance policy that offers a death benefit, while permanent life insurance can be a little more complicated.

    However, understanding each type of life insurance is essential to figuring out whether it will be a worthwhile investment for you. We’ve prepared short descriptions of both types of life insurance, followed by a few pros and cons to help you out.

    Term Life Insurance

    Term life insurance provides a tax-free death benefit to your beneficiaries upon your passing. Term life policies provide coverage for a fixed period, be it 10 years, 20 years, or 30 years. Note that this means that your term policy coverage may end before you pass away. 

    Many people opt to get term life insurance because of its relatively lower cost compared to whole life insurance. However, term life insurance’s lower price means no payout after the term expires, and no real value outside a death benefit. 

    Consequently, if a death benefit is paid out, your beneficiaries may use it in many ways. Families may use the term life insurance death benefit to replace lost income and cover living expenses, pay off debts, finance burial fees, supplement college costs, or create an inheritance. 

    Because of this, we recommend consulting with a financial expert to get a better picture of how much coverage you’ll need from your term life insurance before committing. 

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    Term Life Insurance Pros And Cons
    ProsCons
    Term policy is straightforward and easy to understandLower premiums for younger applicantsPotential for term policy conversion to whole life insuranceTerm life insurance offers temporary coverage-qualifying for insurance can be challenging if you have new medical issues

    Permanent Life Insurance 

    Unlike term life insurance, permanent life insurance has you covered for as long as premium payments are made. This means that your beneficiaries will receive a sum of money regardless of the time of your passing. Another significant difference between a term life policy and permanent life insurance is that the latter builds cash value over time. 

    On top of this, there are two main variations of permanent life insurance that you can choose from: whole life insurance and universal life insurance. 

    Whole Life Insurance

    Whole life policies are an excellent choice for individuals who prefer a bit of stability in their financial plans. Some of the main features of a whole life policy are a guaranteed death benefit and cash value with the possibility of dividend payouts. Whole life policy premiums also remain constant regardless of external factors, making payments easier to plan for than other permanent life policies.

    Because the plan’s cash value is guaranteed to grow steadily, some may opt to whole life plans as an investment. This is because of the ability to borrow against or withdraw the policy’s cash value to use for tuition, retirement, or as collateral in a loan. 

    Universal Life Insurance

    This type of insurance policy is more flexible than the alternative, but this involves some risk. Universal life insurance also accumulates cash value over time, but many factors influence growth. Namely, the amount of money paid in premiums and the interest rates associated with universal life insurance affect the total cost. 

    In short, this policy’s premium scales with time, making it difficult for policyholders that want to use universal life insurance into retirement. As the cost of living rises, the premiums associated with universal life insurance will increase, as well. 

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    Permanent Life Insurance Pros And Cons
    ProsCons
    Does not expireAccumulates cash value and functions as a type of savings accountUseful for estate or inheritance planning and diversifying investments Costs more money than term life insuranceIf taken as an investment it may not have the same returns on your cash value as other investment typesMuch more complicated than term life and may have extra fees

    What Should I Consider When Choosing A Policy?

    Failing to plan for life insurance can result in added costs associated with cancellation and extensive changes to your policy. For some, it may even become a burden for the family members and loved ones that are left behind. Shop for your insurance plans wisely by considering the following factors. 

    Premiums

    One of the most important considerations when choosing a life insurance policy is the cost of premiums. Generally speaking, premium payments vary with the age, family history of illness and health complications, and even smoking or drinking habits. We recommend shopping around a bit before committing to one policy to get the best rates on your premiums. 

    Term Length

    If you decide on term insurance life, you should also consider your life insurance plan’s length. Life insurance policies can range from 10 years, 20 years, or even 30 years worth of coverage. However, take note that longer-term policy coverage will also result in higher premium payments. 

    The logic behind this is that the insured person is much more likely to pass away within a timeframe of 20 years versus 10 years, and the premium payment rises to offset the risk. 

    Possible Policy Adjustments

    Developments during your lifetime may sometimes require adjustments in your life insurance plan. For example, your children become financially independent adults, and you’d like to adjust your life term insurance accordingly. Changing circumstances like this require some breathing room in your policy, and a bit of flexibility is always beneficial. 

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    Is Life Insurance Worth It For Me? 

    Many people regard life insurance as a must when planning for their futures. Given the different kinds of life insurance plans, it can seem like there is an option for everybody. However, not everyone may necessarily need a life insurance policy of their own. 

    Generally speaking, individuals who may not need a life insurance plan are single, financially independent, and without significant debts. On the other hand, people that have dependents might want to look into taking out an insurance plan, so their families are taken care of upon their passing.

    So is life insurance worth it for you? The answer is mostly circumstantial, but it’s not as complicated as you think.

    Who Should Apply For Life Insurance?

    If not everybody needs it, who are the people that should apply for life insurance? Whether its term life or permanent life insurance, there are many situations when using and securing a policy for your peace of mind is worthwhile.

    Parents With Young Children

    A parent’s passing in a young child’s life can create both emotional and financial hardship within a family. Whether it’s the loss of income or child care, setting aside money to be disbursed upon a parent’s passing or as a cash value helps secure the child’s financial needs until they can become self-sufficient. 

    Parents With Special-Needs Children

    Many special-needs children require lifelong care and may not become self-sufficient after their parents pass on. Because of this, parents may want to consider buying a policy so the death benefit can be used for a special needs trust that is managed by a financial advisor. 

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    Adults That Have A Joint Mortgage

    Loan and mortgage payments don’t cease because a spouse has passed away, and it can be difficult to maintain payments on one partner’s income. The death benefit from a life insurance plan provides a substantial sum of money to ease the burden of a surviving spouse’s sole responsibility to pay off a mortgage. 

    Young Adults That Want Low Premiums

    Generally speaking, if a person is young and in good health, their premiums will be much lower than otherwise. Someone in their twenties may want to apply for life insurance early in life before health complications occur to keep payments low and manageable. Young adults may want to consider health insurance, especially if they plan to start a family soon. 

    For Peace Of Mind

    While this intersects with many other situations, some people want to take life insurance policies that may or may not accumulate cash value just for peace of mind. No term life can replace a person’s worth, but it can provide protection after the uncertainty of a loved one’s passing. Whether the insurance plan protects your children, parents, or other people you care about, the peace of mind is priceless. 

    Your Family’s Financial Security

    Protection is at the core of every life insurance plan, and as long as there are people that depend on you financially, insurance is a good idea. Some people may want to provide for their families in their passing the same way they would have in life: be it college funds, seed money for a child’s business, or even a fund for their wedding one day. 

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    Who Shouldn’t Apply For Life Insurance? 

    What about the people that don’t need an insurance plan? Some may be on the fence about taking out an insurance plan because they’re unsure if it would benefit them enough to justify paying regular premiums. Here are some scenarios where it isn’t worth it to apply for life insurance: 

    Adults With No Dependents

    Many people think of insurance with this general rule of thumb: if you don’t have anyone depending on you for financial security, you probably don’t need life insurance. The reasoning behind this is that if nobody needs to be protected by your money after your passing, such as with self-sufficient adult children or no children at all, it isn’t worth it to buy a plan. 

    Those With No Financial Obligations

    If a person has all their loans, mortgages, and other financial obligations paid off and secured by other means, buying life insurance may not be worth it. Instead, we recommend considering savings accounts or other investments. 

    People Looking For An Investment

    If you’re looking into life insurance as a potential investment that will make you money in the future, it’s likely not the most profitable choice. Life insurance plans aren’t designed to create policyholder money (even in cash value) and are instead constructed to protect and financially secure a person’s loved ones upon their passing.

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    Conclusion

    Many adults consider buying life insurance to be the next logical step as they progress through their careers and chase their personal goals. There is a wide selection of insurance plans that can fit most budgets and needs, such as term life insurance and whole life insurance. 

    Given the options for buying a life insurance plan, many people lean toward getting one. But is life insurance a necessity for everyone? As it turns out, the answer is based on individual circumstances.

    Adults with dependents or other loved ones that may be affected by their passing would find buying an insurance policy to protect their financial futures to be worth it. On the other hand, people with no dependents or no financial obligations that may carry over after their passing may not find buying an insurance plan to be worth the trouble. 

    This being said, the best way to be sure about a policy’s worth is to connect with financial experts that can advise you. Contact Wesley LLC today so we can help you make the best decision for your finances! 

    Written By Cameron McDowell
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