The Benefit of Life Insurance is there may be an investment in the future of your family and can also improve your investment portfolio.
If you worry about the cost of a life insurance policy or see it as an unnecessary expense. Then you are not alone.
But as long as you choose the right type of policy for your needs, get enough coverage. And can afford the premium, removing the benefit shortcomings, especially if others depend on you for support.
You buy home insurance to repair or replace your home if a disaster strikes. Life insurance cannot restore or replace your life. But it can ensure that your family will not face financial disaster if you die.
When you buy a life insurance policy, you enter into a contract with the insurance provider.
You agree to pay the policy’s premium and the insurer agrees to pay death benefits to one or more of your chosen beneficiaries during the policy term.
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Here are some benefits of Life Insurance that are available for different types of Life Insurances.
Benefits of Life Insurance
- Cover estate taxes: If your property is subject to federal or state property taxes. Your beneficiaries can use the proceeds of your life insurance policy to help pay for them. Avoiding the need to sell the property.
- Create an inheritance: People who do not have a lot of assets can buy life insurance to create an inheritance for their children or other loved ones.
- Make a charitable contribution: You can contribute posthumously to your favorite charity by naming it as the beneficiary of your life insurance policy.
- Pay final expenses: Life insurance can help pay for funeral costs such as funeral and burial costs. You can give relief to your loved ones from these possible expenses by purchasing a life insurance policy.
- Pay outstanding debts: The death benefit of a life insurance policy can help your survivors pay off outstanding debts, such as a credit card bill, a mortgage, or a personal loan.
- Replace income: Many couples depend on two incomes to maintain their lifestyle. A life insurance policy can ensure that your partner or spouse can continue their life by providing an amount to replace your income.
- Pay for child care: In cases where one parent works and the other takes care of the children. A life insurance policy can replace the expenses that would be incurred to care for the children if the parents stay at home.
- Provide for dependents: Life insurance can pay for your dependent children or grandchildren. For college education or other life goals if you reach Milestone before you die. They can use life insurance payments to replace them.
Benefits of Term Life Insurance
Costs Less
Because life insurance only provides death benefits and does not create cash value, it is often a more economical option.
For example, we requested a life insurance quote from Farmers Insurance for two healthy women, ages 20 and 50. A 20-year-old can buy a 10-year, $ 250,000 policy for $ 12.06 per month. While a 50-year-old can get the same policy for $ 38.93 per month.
Provides Temporary Protection
Some insurance is not required over a lifetime, and for this, term insurance may be a perfect fit.
For example, if you have 15 years left on your mortgage, and still owe $ 100,000, you can purchase a 15-year, $ 100,000 life insurance policy. Or, if you estimate paying $ 50,000 to send your child to college, you can buy a $ 50,000 term life policy that will last until they complete their education.
Tax-Advantaged Employee Benefit
Life insurance is an inexpensive way for employees to offer life insurance to employers in the form of tax-advantaged fringe benefits.
Employer-sponsored term plans vary, but some offer coverage at a lower rate than individual life insurance policies, and some employers cover all or part of the premium.
Disadvantages of Term Life Insurance
No Lifetime Protection
Once the term ends, you have coverage. However, some term life policies allow you to renew your coverage at the end of the contract, usually at a higher rate.
But you cannot renew the life period indefinitely. If you want to be covered after the end of the period, you need to apply for a new policy, which is likely to be at a much higher rate than the previous one.
Not Available After a Certain Age
Typically, according to the Insurance Information Institute, providers do not offer life terms after a certain age, usually around 80.
Therefore, if your policy expires after 3 years of life, then you will not be able to renew it. At this age, purchasing a permanent life insurance policy is not a viable option for most people.
No Cash Value
Since it is not built for a lifetime, term policies do not create a cash value, or have an internal savings component: once you pay the premium, in most cases, they are completely gone.
Some policies include the withdrawal of the premium facility, which pays back a portion of your premium until you die during the tenure. However, these types of term life policies are usually much higher than regular term coverage.
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Benefits of Permanent Life Insurance
Lifetime Protection
Unlike life insurance, permanent life policies do not restrict your protection for a few years. As long as you pay a substantial premium, your policy can last a lifetime.
This can be particularly beneficial if you develop an insured problem that prevents you from qualifying for another policy.
Builds Cash Value
Any benefit or interest earned on the cash value of your policy is tax-deferred. The cash value is used to offset the cost of insurance like you and your policy age and insurance costs increase, but can also be accessed.
After you accumulate the cash value, you can borrow against it or withdraw from it. Although doing so may negatively impact the policy. Always talk to your insurer before withdrawing from the cash price or taking a loan against it.
Premiums and Death Benefits May Be Flexible
Some permanent life policies give you the option to change your premium payment, increase your death benefit, or both.
However, you may require to provide proof of death benefit, or insured if there is an increase in face value.
Different Policy Types
Traditional whole life, universal life, indexed universal life. And variable life policies are types of sustainable policies that are structured differently.
One of the most obvious differences between them is how the cash value is treated.
Some policies allow you to invest the cash value in mutual funds. While others pay interest according to the performance of market benchmarks such as the S&P 500 (Equity-Indexed Life). While others give interest to the money market rate (Universal Life).
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Disadvantages of Permanent Life Insurance
Cost
Permanent life insurance costs more than term life, especially in the early years of coverage (relative to comparable term policies).
The same healthy 20-year-old and 50-year-old woman discussed above will pay $ 129.13 per month and $ 456.60 per month, respectively, for a $ 250,000 whole life policy.
This is about $ 102 and $ 121 more than what they pay for a 10-year term policy for each amount.
Although the quotes we receive do not necessarily reflect what you pay for a policy. The comparison shows a large size difference between term and life insurance.
Poor Returns Can Reduce Death Benefit or Cause Policy Lapse
The cash value income of permanent life insurance depends on how well cash-value investments perform, or the rate of return the cash value achieves.
For example, variable life insurance enables you to invest in bonds, money market mutual funds, and stocks.
But if your investments perform poorly, you risk losing your cash value, your death benefit, and your policy.
Surrender Periods
Permanent policies often have a “surrender period”, during which time any surrender or withdrawal from the cash value of the policy (cancellation) will be charged – usually a percentage of the amount withdrawn according to a predetermined schedule. Policy document.
The surrender period usually lasts from one to 15 years, with the percentage being consistently reduced each year.
For example, a policy with a surrender period of five years may be reduced to 5% for withdrawals during the first year of policy ownership. 4% during the second, and 1% during the fifth year, or 0%. From the sixth year, the policy will be charged for withdrawal or cancellation.
Can Become a MEC
Although permanent life insurance policies can create a tax-deferred cash value, they can convert into a taxable modified endowment agreement (MEC) if you do not follow IRS guidelines.
In MEC, cash value distributions are taxed as first income, as opposed to the first basis, and may be subject to an additional 10% tax if you are less than 59 59.
To avoid this, you should stay within the guidelines premium limit established by the IRS for the level of coverage of your policy.
In other words, if you increase your premium payment in a universal life policy to accelerate the accumulation of cash value.
But pay more than the IRS limit for the coverage level of your policy. You inadvertently put it in MEC can change.