The top five benefits of life insurance.
 |
| Image Credit: Google |
Life insurance is an important part of your financial plan and should be taken into account when making decisions.
There are many reasons why people do not purchase life insurance, such as the belief that it is too expensive. A survey conducted in 2021 found that nearly half of American adults do not have life insurance because they think it's too costly. The average cost for a $250,000 term life policy is actually around $160 per year.
KEY TAKEAWAYS
One in five American adults does not have life insurance, often because they believe it is too expensive.
Many people underestimate the cost of insurance.
Besides providing financial security for loved ones, life insurance also has other benefits such as tax breaks and uses.
The top 5 benefits of life insurance.
Life insurance has a number of useful benefits, such as providing financial security in case of an unexpected death.
1. Life Insurance Payouts Are Tax-Free
If you are the beneficiary of a life insurance policy and it is in effect when you die, your beneficiaries will receive a lump sum death benefit. This payment does not count as taxable income for your beneficiaries, nor do they have to report this money on their tax returns.
2. You won't have to worry about your dependents' living expenses.
Many experts believe that having life insurance coverage that is equal to seven to 10 times your annual income would be the best option for you. This way, anyone who depends on your income—such as your children or spouse—won't have to worry about significant expenses. For example, if you had a policy with this coverage, it could cover the expense of their college education without them needing to take out student loans.
3. If you die, life insurance can cover your final expenses.
The average cost of a funeral in the U.S. as of 2021 was $7,848, with many Americans unable to afford even an affordable emergency expense such as burial costs on their own. If you have life insurance, your beneficiaries can use money from the policy to cover these expenses without having to resort to personal savings or borrowing money.
4. If you have a chronic or terminal illness, you can get coverage.
Many life insurance companies offer endorsements, also known as riders, that you can add to your policy to enhance or adjust your coverage. An accelerated benefits rider allows you to access some or all of your death benefits under certain circumstances. Under some policies, for example, if you are diagnosed with a terminal illness and are expected to live less than 12 months, you can use your death benefit while you’re still living to pay for your care or other expenses.
5. Policies can supplement retirement savings.
If you purchase a life insurance policy, it can accumulate cash value in addition to providing death benefits. This increase in funds can be used for various purposes, such as purchasing a car or a home security deposit. You may also access these savings during retirement years if needed.
However, there are some benefits to having life insurance. It is not a replacement for retirement funds like 401(k)s and IRAs though it does come with death benefits. Additionally, cash-value life insurance can be more expensive than term life insurance which lacks any savings component but simply pays out when the policyholder dies.
The Bottom Line
Life insurance is not only for the wealthy. Regardless of your income level, life insurance can provide financial stability for loved ones in the event that you die. And, it might be more affordable than you think to get coverage. If you decide to purchase life insurance, please check out Investopedia's list of best life insurers of 2022.
.png)
