What Are the Benefits of Life Insurance?

Even the best intentions sometimes go astray. Home repairs, medical expenses, or even death can occur, and each of these “unplanned” situations might be rather costly. Nearly one in every five life insurance policy holders feels underinsured. Life insurance is one way to increase financial security for the family, loved ones, and a business before and following an individual's death.

The two most common forms of life insurance are term and whole life. Whole life insurance is sometimes called “permanent life insurance.” In 2018, 4.0 million people bought term life insurance policies, and about 5.9 million bought whole life insurance policies.

Term life insurance policies are limited in duration and are well-suited for most people. If you live out the period provided in your policy it will lapse, and you will receive no benefit. The most common period of term life insurance policies are one, five, 10, 15, 20, 25, and 30 years. The coverage levels vary by policy, but can reach millions. Term life insurance guarantees the same price for the duration of the policy.

Whole life insurance policies often cover you for the rest of your years and typically include a cash value element that you can use while you are still alive. It is the closest to what might be called “set it and forget it” life insurance. Typically, your premiums remain constant, and you receive a guaranteed rate of return on the insurance's cash value, while the amount of the death benefit remains the same.

Many people believe life insurance is either too complicated or prohibitively expensive to consider, resulting in only 57 percent of individuals holding it in 2019. In reality, life insurance can be very affordable. For example, a healthy 30-year-old can obtain a 20-year term life insurance policy with $250,000 in coverage for about $13 per month.

Most individuals are aware of the primary benefits of life insurance: If you die unexpectedly, your family receives money, and you receive the security that they will have resources to help them to continue on without you. However, there are significant additional benefits based on the type of policy and the amount of coverage.

If you have life insurance and die during your policy term, your beneficiaries will get a lump sum death benefit. Life insurance payouts are not taxable - therefore, your beneficiaries do not have to disclose them.

Numerous life insurance companies offer endorsements, usually referred to as riders, that you can add to your policy to increase or decrease your coverage. Under some circumstances, an accelerated benefits rider enables you to access a portion or all of your death payment. For instance, if you are diagnosed with a terminal illness and anticipate living fewer than 12 months, you may be able to utilize your death benefit while still alive to pay for your treatment or other expenses.

Many people only identify life insurance with the death of the policy holder, but the coverage can also be an important part of your retirement planning. Whole life insurance policies last the policyholder's entire life and frequently include a “savings” component known as cash value.

The cash value of such plans can be withdrawn or used as a loan to supplement retirement income or to pay for long-term care expenses. Nearly 70 percent of adults who live over the age of 65 will require some long-term care. Securing medical and non-medical care funds through life insurance could significantly improve your quality of life in your later years.

Life insurance policies can help bridge the income gap and supplement additional expenses when one parent or the principal breadwinner dies. The death benefit can help pay for groceries, utilities, and automobile payments. Education is another critical expense that parents typically save for. A life insurance payout can help to pay for your child's college education.