Most people understand the main benefits of having life insurance: your family gets money if you die unexpectedly - and you have the assurance of knowing they will have the resources to continue living without you. While these benefits generally apply to all types of life insurance, there are other important benefits depending on the type of policy and the amount of coverage you get.
There are also benefits for women.
Father and daughter playing house
It can help take care of your family if something happens, but that's just one of the benefits of life insurance.
The many benefits of buying life insurance
All life insurance can give you the financial confidence that your family will have financial stability in your absence. But generally, the more life insurance you have, the more benefits it will provide to your family in times of need. For example, some people receive a nominal amount of life insurance - say $25,000 - at their place of employment. While this sounds like a nice sum of money in theory, in practice it may only be enough to cover funeral expenses and a few mortgage payments. But with a higher amount of coverage, your family can enjoy many more benefits, such as:
- Income replacement for years of lost wages
- Paying off your home loan
- Pay off other debts, such as car loans, credit cards and student loans
- Provide funds for your children's college education
- Help with other obligations, such as caring for aging parents
Beyond the amount of your coverage, different types of policies can also offer other benefits:
Life insurance has tax advantages , as death benefits are generally tax-free; and some policies have features that can help transfer money to heirs with less tax to pay.
1 Some policies have cash value that accumulates over time
2 and can be used to pay premiums later, or even used to live on in retirement.
3 Life insurance can often be combined with other types of coverage, such as disability insurance to replace a portion of your salary if you are unable to work.
Many policies have valuable "riders" or contract provisions that provide benefits before death.
4 The benefits of different types of life insurance
There are two basic types of life insurance: term life insurance and permanent life insurance. With a term life insurance policy, you pay a specific premium for a set period of time (say, 10 years). If you die during that period, a death benefit is paid to your beneficiaries, but when the term is over, you must obtain new coverage or go without. A whole life insurance policy is permanent life insurance that lasts for your lifetime.
What are the advantages of term life insurance?
Generally lower cost
Easier to understand - it's purely an insurance product
Can be converted to whole life - but ask before you buy
If you no longer need it or can't afford it, you can leave without losing anything more than the premiums already paid
What are the benefits of whole life insurance?
Permanent life insurance
Contains a significant savings component known as cash value that you can withdraw or borrow against
Can offer tax-advantaged estate planning benefits
How to get more benefits - and value - when you buy life insurance
As a general rule, the most cost-effective way to buy life insurance is when you're younger and healthier. Life insurance companies generally give lower rates to their younger customers for reasons that are easy to understand:
They tend to have a longer life expectancy
They are less likely to have been diagnosed with a critical illness
They are likely to pay premiums over a longer number of years
Not in your 20s anymore? Don't worry. There are still plenty of affordable options out there. But if you want to get the most out of every premium dollar, it's worth doing your homework and figuring out exactly what you want from your coverage. Most policies have riders that can add valuable benefits for a relatively small additional amount. Two of the most popular riders are:
Accelerated Death Benefit: This rider can help pay for the necessary care of a diagnosed chronic or terminal illness. While this can be very helpful in times of need, you should also be aware that the funds paid will generally reduce the death benefit paid to your family.
5 Waiver of Premium on Disability:
This valuable rider gives you the opportunity to stop paying premiums if you become disabled and still maintain your coverage.
6 There are other types of riders you should know about as well, so talk to an experienced professional - such as a Guardian financial professional - before you decide to purchase one policy or another. You should also ask about other ways to control your policy costs, including:
Buying a joint policy for you and your spouse
Purchasing a group rate policy from your employer
Buying a whole life policy that builds up cash value, which can be used to reduce monthly premium costs later
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