Life insurance offers a number of useful benefits. Among them:
1. Insurance payments -Life are tax-free
If you have a life insurance policy and you die while your coverage is in effect, your beneficiaries will receive a lump sum death benefit. Insurance payments -life is not considered as income to the tax purposes, and your beneficiaries do not have to report the money when they file their tax return. 3
2. Your dependants won’t have to worry about living expenses
Many experts recommend taking out life insurance for seven to ten times your annual income. If you have a policy (or policies) this size, people who depend on your income should not have to worry about living expenses or other significant costs. For example, your insurance policy may cover the cost of your children’s college education, and they won’t need to take out student loans.
3. Life insurance may cover final expenses
The national median cost of a funeral including a visit and a funeral was $7,640 in 2019. 4 Since many Americans do not have enough savings to cover even an emergency cost of $400, having to pay for funerals can be a significant financial burden. 5 If you have a life insurance policy, your beneficiaries can use the money to pay for your burial expenses without having to draw on their own savings or credit.
Some insurers offer end-of-pocket policies . These policies have low coverage amounts and relatively inexpensive monthly premiums.
4. You can get coverage for chronic and terminal diseases
Many insurance companies -life offer endorsements, also called endorsements , that you can add to your policy to improve or adjust your coverage. An accelerated benefit endorsement allows you to access some or all of your capital -death under certain circumstances. Under some policies, for example, if you are diagnosed with a terminal illness and expect to live less than 12 months, you can use your capital -death while still alive to pay for care or other expenses.
5. Policies can supplement your savings -retirement
If you take out a full, universal or variable life insurance policy, it may accumulate commuted value in addition to providing death benefits. As the surrender value increases over time, you can use it to cover expenses such as buying a car or making a down payment on a home. You can also draw on it if you need it during your retirement years.
However, a life insurance policy should not replace traditional pension accounts such as a 401 (k) or IRA. In addition, surrender-value life insurance is considerably more expensive than term life insurance, which does not have a savings component but simply a death benefit.
The bottom line
Life insurance isn’t just for the rich. Regardless of your income level, life insurance can guarantee that your loved ones will be able to make ends meet if you die. And, life insurance might be more affordable than you think. If you decide to get coverage, check out Investopedia’s list of top insurance companies -life of 2021 .
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