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Benefits of life insurance

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Planning for life after death is never easy, but doing so now can save your loved ones time, money and energy in the future. One way to plan ahead is by taking out a life insurance policy. There are many benefits of life insurance, the first of which is the financial security such policies provide for your loved ones after you pass away.

Before you purchase a life insurance policy, you’ll first need to evaluate the different types of life insurance products that are available. Depending on your specific needs, you may be a better candidate for certain life insurance policies versus others. In this guide, we break down all the different benefits associated with having various types of life insurance policies to help simplify the decision-making process.

Financial benefits of life insurance

One of the primary benefits of having life insurance is the financial relief it can provide your loved ones. When setting up your life insurance policy, you will be asked to select a beneficiary — those who will receive the amount specified in your policy. Beneficiaries are able to use the funds however they like in most cases, including for the following:

  • Funeral & burial costs: The average median cost of a funeral in the United States is around $7,000, according to the National Funeral Directors Association (NFDA). Beneficiaries can use the money allocated to them from a life insurance policy to pay for such expenses. However, it will take some time to receive the funds after filing a claim with an insurer, so beneficiaries may need to pay out-of-pocket initially for funeral costs until the claim is processed and reimbursement can be issued.
  • Taxes & legal expenses: Many times, surviving family members will need to hire an estate attorney to help settle the affairs of the decedent. This includes reporting the death to the county, closing out any existing accounts, settling any debts and filing estate and personal taxes for the decedent. Life insurance policies can be used to pay for such expenses, alleviating any financial burden such costs may place on your surviving loved ones.
  • Childcare & education: Life insurance policies can also be used to pay for childcare and education. Especially if you’re the person who is financially responsible for covering these costs, having these expenses suddenly fall on the shoulders of a spouse or partner can be a shock. Rather than forcing them back into the workplace and balancing the child’s needs with their own, a life insurance policy can help cover these expenses and allow them to continue living comfortably as they were while you were living.

Monthly bills & expenses: Whether or not you’re the sole breadwinner for the family, it’s likely that you contribute to paying for things like rent, mortgage, groceries, utilities and other household expenses. In your absence, it can be difficult to shoulder the added costs without any financial assistance. A life insurance policy can assist with these expenses, allowing family members to continue on with the lifestyle they’ve come to enjoy without needing to take on an extra job or re-enter the workforce.

Long-term planning: In addition to the cost of living, life insurance policies can help you set up a brighter financial future for your loved ones. Depending on what you’re able to currently take on for your premium, you can choose to leave your family members a substantial sum of money that can help them make a down payment on a home, start a business, go back to school and travel, for example. It can be a great way to establish a legacy for your loved ones long after you’re gone.

Benefits of term life insurance

Term life insurance is a type of policy that covers a set amount of time — usually 30 years or less. The main benefit of term life insurance is its ability to provide peace of mind for short-term financial stressors. Other benefits of term life insurance that can make it a great choice for your specific situation include:

  • Inexpensive: Compared to whole life insurance, term life insurance policies are generally less expensive. This is due to the fact that the insurer assumes you will outlive the term of the policy and will not have to pay out to your beneficiaries. By contrast, whole life insurance policies pay out no matter when you die, which is why they are the more expensive option in most cases.
  • Flexibility: Customers can select coverage for as little as one year or as long as 30 years, depending on the timeframe for which they’re most concerned about having coverage. For example, if you’re the parent of a college student, you may wish to have a term life insurance policy for five years to safeguard your child’s ability to continue their education in the event that you die.
  • Simplicity: Term life insurance policies generally don’t offer ancillary or lifetime benefits, making it one of the simplest solutions for safeguarding your family’s financial future. All customers need to worry about is selecting the coverage amount, length of their term and preferred carrier. From there, the only additional responsibility policyholders will have is making timely payments on their premium to ensure they’re covered for the duration of their policy.

Benefits of whole life insurance

Whole life insurance is the better of the two products in terms of guaranteed payout after you die. The main benefit of whole life insurance is the fact that as long as you make timely payments, your beneficiaries are assured the funds allocated to them regardless of when you pass away. Additional benefits of whole life insurance policies include their ancillary and lifetime benefits, such as:

  • Guaranteed cost: When you select a whole life insurance policy, your premiums will typically not ever increase from the amount you originally agreed to pay. While the premiums are more expensive, the long-term value provided through these policies can outweigh the short-term cost. Especially for those planning for retirement, whole life insurance policies are a great way to guarantee coverage at a fixed cost during your golden years.
  • Fixed benefit: As long as your premiums are paid, you’re providing a guaranteed benefit to your beneficiaries. This is one way to ensure certain of your loved ones’ finances are covered after you die. And because whole life insurance policies aren’t determined based on a preset time frame, you’ll have these benefits available for your entire life.
  • Tax-advantaged benefits: The sum you select for your beneficiaries is given to them on a tax-free basis in most cases; however, there are additional benefits of whole life insurance policies in regards to their tax-advantaged benefits. Namely, the cash value of your policy grows on a tax-deferred basis, meaning you can borrow against its value if you need a quick loan while you’re still living. This also makes it easier for your beneficiaries to access the assets you leave to them after you die.
  • Retirement funding: You can use your whole life insurance policy to essentially create supplemental income during retirement. Depending on how long you’ve had the policy and if you’ve built up its cash value, you can use the money in the same way you would in a tax-advantaged fashion. Unlike a 401k or IRA account, the money you withdraw won’t be subject to taxes and is protected from market fluctuations. Be mindful that what you withdraw from your policy will be deducted from the amount given to your beneficiaries in the end.

Benefits of life insurance riders

Life insurance riders are additional benefits that policyholders may select to strengthen their policies. The main benefit of life insurance riders is that they allow policyholders to customize coverage to meet their unique needs. Riders may cost a little extra, but they can provide a host of additional benefits depending on which ones are selected. The following represent the most common life insurance riders available and how they benefit the policyholder:

  • Accidental death rider: This life insurance rider pays out an additional death benefit if the decedent passes away due to an accident. Many times, the accidental death rider is equal to the amount of the original policy, which effectively doubles the payout to the beneficiary. For this reason, the rider is sometimes referred to as the double indemnity rider. Especially if you’re the sole breadwinner for the family, it can be a good idea to add an accidental death rider to your policy.
  • Family income benefit rider: In the event that the policyholder dies, having a family income benefit rider can provide a stream of income to the family members in their absence. Policyholders will need to select the number of years that their family will receive this benefit. It’s a great way to ensure your family’s financial future is taken care of in your absence.
  • Accelerated death rider: The accelerated death rider provides a benefit specifically to those who have been diagnosed with a terminal illness. In the event you receive a terminal diagnosis, you may use your death benefits to cover the cost of medical expenses. Some insurance carriers may deduct the amount you take out plus interest from what will be left to your beneficiaries, so be sure to review the terms of the accelerated death rider to see if it’s worth adding to your policy.

Waiver of premium rider: This rider provides a special benefit to those who become permanently disabled and lose their ability to earn a living. If this happens and you have the waiver of premium rider added to your policy, you will not be responsible for paying your monthly premium and will still ensure a payout for your beneficiaries. Premiums are waived until the time the policyholder is able to re-enter the workforce.

How to get more benefits when buying life insurance

When purchasing a life insurance policy, you’ll need to conduct thorough research to ensure the plan you select is able to meet your needs and those of your beneficiaries. One of the best ways to enhance the benefits your life insurance policy offers is by adding riders to the policy. There are many life insurance riders to choose from, and it’s important to carefully review each with your insurance carrier to see which (if any) can provide the most value to you and your loved ones.

In addition to life insurance riders, policyholders should carefully consider what objectives they may have for their insurance policies. For instance, a whole life insurance policy may offer the greatest benefit if the policyholder plans to use its cash value for supplemental income during retirement. Take time to consider what the ultimate goal of your life insurance policy may be prior to making a purchase.

The takeaway

  • Life insurance policies provide many benefits to policyholders and their beneficiaries.
  • Depending on your specific situation, certain life insurance products may provide better benefits than others.
  • Adding life insurance riders can provide additional benefits to your whole life insurance policy.
  • The best way to get more benefits from your life insurance policy is to carefully consider the ultimate goal you wish to accomplish through purchasing such a policy.

Purchasing life insurance provides policyholders and their beneficiaries with many benefits. Life insurance policies can provide a brighter financial future for your loved ones, helping them avoid financial duress in your absence. While some policy types may be a better fit for you than others, you can always customize your life insurance benefits by adding riders to your policy. Discuss options with a multiple providers to maximize your benefits from a life insurance policy.

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