Life Insurance Benefits (2024)

FAQs

Life Insurance Benefits? ›

Buying life insurance protects your spouse and children from the potentially devastating financial losses that could result if something happened to you. It provides financial security, helps to pay off debts, helps to pay living expenses, and helps to pay any medical or final expenses.

Buying life insurance protects your spouse and children from the potentially devastating financial losses that could result if something happened to you. It provides financial security, helps to pay off debts, helps to pay living expenses, and helps to pay any medical or final expenses.

Can You Cash Out a Life Insurance Policy? With a cash value life insurance policy, like whole life or universal life insurance, you can access the cash value. One of the ways to do that is to cash out or surrender the policy. If you choose to cash out your policy, you'll receive the cash value minus any surrender fees.

It can also help cover large debts, like a mortgage or student loans, rather than leaving your family responsible after you die. Plus, life insurance pays off with valuable peace of mind. When you take out a life insurance policy, you'll know that your loved ones won't have added financial stress if you pass away.

Permanent life insurance policies will allow you to access the cash portion of your account while you're alive. Term life insurance, meanwhile, does not have a cash element for policyholders to access. So, if you're planning on using your life insurance as a backup cash resource you'll want to avoid term policies.

Choosing the Right Coverage for Your Age

If you can fit the monthly premium into your budget, your 20s are the best time to buy affordable term life insurance coverage.

A savings account better suits the young professional worker who does not have dependents and is just starting to build up savings for a rainy day. But as your career progresses and you start a family, the best way to financially protect your dependents in case of your untimely death is to invest in life insurance.

Cons of life insurance

One disadvantage of life insurance is that the older you are, the more you'll pay for a policy. This is because you're more likely to pass away during the policy period than a younger policyholder and will, in turn, cost the life insurance company more money.

Cash value typically doesn't accrue for the first two to five years of a policy's term. It can take decades for it to accumulate into a significant amount. Exactly how quickly the cash value grows depends on the type of policy.

You can buy either term or whole life insurance; which is best will depend on your needs and financial situation. Life insurance may not be worth if you have no dependents, if you have a tight budget, or if you have other plans for providing for them after your death.

Can I use my life insurance to pay off debt? ›

Yes, it can be done. If you have the right type of life insurance – whole life or universal life – and have been making on-time payments to it for an extended period, you may have accrued enough “cash value” in the policy to bury your credit card debt.

There are four ways to get the cash from your policy while you're still alive: borrow, withdraw, surrender, or sell. Before you decide to draw cash from your policy, be sure you understand the pros and cons of your decision.

Most insurance policies include a suicide clause that states the policy will not pay out the death benefit if the policyholder commits suicide within a certain period of time after the policy is purchased. Typically, the exclusionary period is two years, but it can vary between insurance companies.

One disadvantage of life insurance is that the older you are, the more you'll pay for a policy. This is because you're more likely to pass away during the policy period than a younger policyholder and will, in turn, cost the life insurance company more money.

Life insurance is there to help your loved ones with financial needs if you aren't there anymore. Consider your mortgage and other debts, how much income would need to be replaced, money to cover a funeral, and college for the kids.

The bottom line. Everyone has different needs and considerations when it comes to deciding whether or not they need life insurance. In general, life insurance could be beneficial for small business owners, parents with jobs, stay-at-home parents, retirees, single people without children and empty nesters.

Beyond retirement income, life insurance plays a crucial role in estate planning and legacy preservation: Estate tax mitigation: High-net-worth clients may face estate tax liabilities upon passing. Life insurance can provide liquidity to cover these taxes, preserving the estate's assets for heirs.