Crossing “buy a life insurance policy” off your to-do list is a major flex. Being insured offers more than just a sense of accomplishment (though you absolutely deserve a gold star for thinking about the future, there are quite a few upsides to purchasing life insurance).
One of the most notable benefits of a life insurance policy is that your loved ones — so long as you designate them as beneficiaries — can use the death benefit for whatever they want or need if you pass away.
What Are the Pros and Cons of Life Insurance?
It’s a good practice to consider the advantages and disadvantages of a purchase before you sign on the dotted line. You likely did your research before choosing your car or health insurance plan, right? Life insurance is no exception.
Let’s explore life insurance benefits and some potential things to consider.
Pros of Life Insurance
1. Life Insurance Can Provide Your Family With Some Financial Protection.
Term life insurance benefits your loved ones by providing them with a lump sum payout if you pass away. This payout, also called a death benefit, can be small or millions of dollars, depending on what coverage amount you choose.
There are no regulations on the way life insurance payouts are spent, so you can be assured that if you pass away with an active policy, your dependents will be able to use the death benefit however they see fit.
2. One Of The Benefits Of Life Insurance Is That Payouts Are Generally Tax-Free.
Money received from a death benefit is not considered taxable income. But (fun fact), while the face value is tax free, if you leave the money to accumulate interest, that interest does become taxable.
3. Life Insurance Can Be Used To Cover Final Expenses.
The last thing you want to do is leave behind a complicated situation. In 2021, the average cost of a funeral with burial was nearly $8,000. One of the benefits of a life insurance policy is knowing the people you care about will have money to pay for your final expenses.
4. It’s (probably) less expensive than you think.
Over 50% of people think that life insurance is about three times more expensive than it is. Term life insurance is flexible and the most affordable type of life insurance on the market. One of the benefits of term life insurance is that you can pick a policy that works within your budget by adjusting the coverage amount and term.
5. Some types of life insurance feature a cash value component.
Permanent life insurance has a cash value component that can benefit the policyholder or beneficiaries. In some cases, if you have a whole life policy, you can withdraw cash or borrow against the cash value of the policy. Life insurance policies with cash value are more expensive than term life insurance, and withdrawing cash from a policy can reduce the death benefit in some cases.
Cons of Life Insurance
1. It can be costly if you are older or have health issues.
While the benefits of life insurance are incredible, they become less so if the cost of your policy is more than anticipated. The amount of money you pay for life insurance is determined by several factors including age, medical history, weight, family history, lifestyle, smoking status, and gender.
2. Naming a life insurance beneficiary can be challenging.
59% of people name a spouse as their life insurance beneficiary, and another 38% name their children (you can have more than one beneficiary). But what if you aren’t married and have no dependents? Who benefits from your life insurance policy?
Many insurance companies allow policyholders to name family members, domestic partners, and trusts as beneficiaries.
3. There are several types of life insurance to choose from.
If you take a kid out to frozen yogurt, they will undoubtedly need help navigating the toppings table. Gummy worms, pretzel bites, butterscotch chips, and cheesecake bits?
Options are great, but when there are more choices available than you can fit in your cup, the whole process becomes overwhelming. It’s similar with life insurance but the section below will help you through it.
There are a few different types of life insurance policies out there. Most of them fall under two major categories: term life insurance and permanent life insurance.
What Are the Benefits of Different Kinds of Life Insurance?
Let’s look at the benefits of term life insurance, whole life insurance, and universal life insurance.
Term Life Insurance
Term life insurance is the least expensive type of life insurance you can buy. If affordability and simplicity are big factors for you, consider the benefits of a term life insurance policy.
Whole Life Insurance
One of the benefits of whole life insurance is that it is a type of permanent life insurance. In addition to a death benefit, whole life policies feature a cash value component. If you can afford higher premiums and are interested in growing cash value, whole life insurance is a great option to investigate.
Universal Life Insurance
Like whole life, universal life insurance is permanent and can offer a cash value component. One of the unique features of universal life insurance is flexible premiums. Policyholders can typically adjust their premiums throughout the lifetime of the policy, as long as there is enough cash value to keep the policy in force.
How to Get More Benefits and Value when Buying Life Insurance
Life insurance offers the most benefits when the policy you purchase is the right fit for you and your financial situation. Research different types of life insurance, decide what premiums you can afford, determine how much coverage you need, and then plug those numbers into a free life insurance quote calculator.
Bestow makes term life insurance simple and stress-free with a 100% online application process and zero medical exam requirements. Most receiving same-day decisions, rates starting from just $11 per month, and term periods ranging from 10 to 30 years are some of the benefits of purchasing a life insurance policy with bestow.com.