12 reasons to buy life insurance
- Coverage clarity
- Planning ahead
- Life insurance
Life insurance can often feel like an uncomfortable topic to even think about, which is likely why only about half of Americans had life insurance in 2021 – and that number includes both those who bought life insurance and those who received it as a work benefit, so the number of people in the market to buy life insurance is actually lower.
The big question is: why buy life insurance? It’s often provided by employers and even some banks, so it can seem like an add-on benefit more than a necessity. We just don’t think of it the way that we think of insurance for our auto or our home, but maybe we should. There are a lot of great reasons to buy life insurance; we’ll list some you may not have considered below.
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Why buy life insurance?
It really comes down to not leaving your family with surprise expenses. A life insurance policy can help with the following financial situations.
- Guaranteed protection – many people think that they’re not eligible for coverage because they are old or ill. For these individuals, guaranteed life policies could be a good choice. They will be subject to a risk assessment to determine their premium and death benefits, which will likely be lower than people who purchased when they were younger or who have no health problems, but they cannot be refused.
- Income replacement – whether you’re the sole breadwinner or not, your family relies on your income for their monthly bills.
- Tax free benefit – Life insurance payouts are not considered to be income so your beneficiaries will not receive a bill from the IRS for payments they receive. Note that any interest or dividends are considered income.
- Guaranteed cash value growth – A portion of your whole life insurance policy is saved and invested; this portion can be paid out when you need it. You can borrow against the cash value and if you don’t pay it back, your beneficiaries will receive your death benefit minus your cash value debt.
- Dividend potential – universal life policies are tied to investments and policyholders can receive dividend payments. There is a risk though so be sure to truly understand this type of policy before you purchase.
- Covering burial expenses – most people don’t think to save money for their funeral. These can be a very expensive, and sad, surprise for your loved ones.
- Pay off debt – not all debt goes away when you die. Shared debt, like a mortgage, becomes the sole responsibility of the survivor while personal debt is the responsibility of your estate. While it’s nice to have savings to cover this, any debt paid by your estate is money that your family doesn’t inherit.
- College planning – life insurance policies can help with college costs in two ways: by supplementing education savings or when used to pay off loans.
- Estate taxes – heirs need to pay an estate tax on inheritances, but life insurance beneficiaries are not taxed on the payout. Naming an heir as a beneficiary is a way to help ease the tax burden from the inheritance.
- Protection for your business – business owner life insurance policies can keep your company running by paying off debts, succession planning and estate equalization between family members who are and are not involved in the business.
- Secure retirement – permanent life insurance policies include a cash value portion that grows as you age. Upon retirement you can withdraw some to use as a source of income. It’s even tax-free as long as you take out less than you’ve paid in premiums.
- Financially supporting aging parents – people often need to take care of elderly parents. This can mean taking time off work, paying for residential facilities and more. Purchasing a life insurance policy for your parents can help to ease the financial burden.
Now that you’ve read our 12 reasons to buy life insurance, you can look into options for your own life insurance policy. There are several types to choose from so it’s important to consult an expert who can guide you through the process and help you find the policy that is the best fit.