6 Unique Reasons to Consider Life Insurance
All too often, people think of life insurance only in terms of its death benefit—but these policies can help in so many more ways. Life insurance can be a lifeline - and not just for your family when you die. Today we will discuss six different reasons why you may want to consider investing in a life insurance policy now - not just for your family, but also for your long-term financial strategy.
In 2020, the world came face-to-face with a global pandemic. The COVID-19 virus crossed borders, spread quickly, infected more than 200 million worldwide, and killed more than 4 million without deference1 – proving that, regardless of whether you’re 25 or 85, the risk of any life-threatening illness can come knocking. Even today, while doctors are working feverishly to save lives, the financial ruin left behind is one more wound that requires addressing and time to heal.
Life insurance can never save us from death, but it can provide a much-needed financial lifeline to pay for medical expenses and provide support for loved ones left behind. And since there isn’t a cure for this virus, and we now see that the unexpected can happen at any age, the reasons to consider protecting yourself and your family with life insurance have never been greater.
Life insurance is something you may want to consider adding to your financial plan if you’re interested in providing a measure of security for your loved ones. You can use the proceeds from a life insurance policy to pay final expenses, eliminate outstanding debts, or even cover day-to-day expenses in an emergency. Whether life insurance is a suitable investment for you may depend on what you need and want a policy to do for you.2
Here are 6 reasons to consider adding life insurance to your portfolio:
1.) To Pay Off Debts
When someone dies before outstanding debts are paid off, the money owed may burden their estate, family, and heirs financially. While not every debt is the heirs’ responsibility, cosigners or joint account holders of the deceased could be liable for paying the remaining balance.
Life insurance could provide a financial safety net for loved ones left with the responsibility of paying off those debts. The average American carries around $6,200 in credit card debt.3 Having to pay that off unexpectedly could cause unwanted scenarios for your loved ones, such as the need to liquidate the inheritance in the wake of a death, thereby triggering tax consequences or other unwanted effects.
2.) To Provide A Better Financial Future
Dependents, such as aging relatives, college-bound children, and children with special needs may need care that can be covered through life insurance loans while you’re alive or the death benefits when you pass away. With college tuition costs exceeding $9600, on the low end,4 sparing families and dependents the burden of this debt could prevent financial hardship.
While you’re still living, your life insurance can help fill the income gap by using the accrued cash value or taking a loan against your policy. When you pass away, your heirs can use the death benefit cover day-to-day purchases and living expenses, such as groceries, utilities, and car payments.
3.) To Provide An Extra Source of Tax-Advantaged Income for Retirement
Many people only associate life insurance with death, but the right policy can also fit into the mix for retirement planning. Permanent and whole life insurance last the policyholder’s lifetime and often incorporate a “savings” cash value component. With such policies, the cash value can be withdrawn or taken as a tax-free* loan to supplement income during retirement or put towards long-term care services.
Nearly 70% of people living past the age of 65 can expect to need some form of long-term care.5 Securing funding through a life insurance policy for medical and non-medical care—in the event of an illness or disability—could make a big difference in your quality of life. Some life insurance policies even offer or include riders that will help pay for long-term care costs should the need arise.
4.) To Protect Your Business
71% of small businesses rely on just one or two people to oversee daily operations, so key person insurance plays a vital role in a business’s success story.6 If a business owner or partner in a joint venture passes away, life insurance could give a cash boost to keep a business afloat while things get settled.
Creating a buy/sell agreement between business partners works when an insured partner dies; the surviving partner(s) will have the cash necessary to buy out the heirs’ share of the business. Finally, a business owner may also use certain types of life insurance policies to borrow against as a source of accessible capital. Keep in mind that only whole or permanent life insurance policies are eligible for cash value accrual.
5.) To Leave An Inheritance
Life insurance can be less susceptible to value fluctuation than stock market investments, so it makes sense to plan for leaving a substantial death benefit if you have loved ones or philanthropic interests you wish to support. Life insurance is one of the best methods available to create an inheritance because it usually isn’t taxed before reaching heirs or beneficiaries. In most cases, life insurance death benefits also won't have to go through probate, which will help to reduce stress and red tape for your family after your passing. If you plan to leave a legacy to your loved ones or a charity, a life insurance policy is by far the most efficient financial vehicle for accomplishing this goal.
Policyholders can name multiple beneficiaries, specify inheritance allocations, and even direct funds to a charity or non-profit organization. Additionally, policyholders should name contingent beneficiaries of the death benefits if a primary beneficiary passes away or can’t claim them.
6.) To Be Prepared for the Unexpected
Life insurance can help ease financial hardships for families after a policyholder’s unexpected death. According to a Federal Reserve survey, 39% of Americans would not be able to pay for an unplanned $400 expense between cash, savings, or a credit card by the next statement.7
The loss of a primary earner or caregiver can destabilize many families with the combination of added costs and less money coming in. Even a modest life insurance policy may help fill the income gap during such difficult times.
Protect yourself and the ones you love by incorporating insurance into your financial plan. To choose confidently between term and permanent and understand if you need business coverage or special riders, a conversation with your financial professional is the wisest next step you can make.
Let's have a conversation regarding how insurance could protect you, your family, and your financial nest egg. Contact our office today for a free initial strategy session.
1.) “Coronavirus Resource Center” Johns Hopkins University of Medicine.
2.) “The Pros and Cons of Investing in Permanent Life Insurance” Investopedia.
3.) “Here’s a top reason Americans are carrying an average credit card balance of over $6,200” USA Today.
4.) “See the Average College Tuition in 2020-2021” U.S. News & World Report.
5.) “How Much Long Term Care Will You Need?” LongTermCare.gov.
6.) “Keyman Insurance” Investopedia.
7.) “Federal Reserve Board Issues Report on the Economic Well-Being of U.S. Households” FederalReserve.gov.
* Assuming the policy is correctly structured and properly utilized. Consult with a qualified insurance professional and a tax attorney regarding any potential tax consequences for your particular situation.
This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by an insurance company. They do not refer in any way to securities or investment advisory products. Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results. Optional riders may have an additional cost. Life insurance policy loans will reduce the cash value of the policy and the death benefit. Unpaid policy loans may accrue interest that could lead to policy lapse, loss of tax benefits, or both. Death benefit payouts are based upon the claims paying ability of the issuing insurance company.