When most people think about life insurance, the first thing that comes to mind is death. And while life insurance does provide a financial safety net in the event of an unexpected death, it also offers several other benefits that are important for everyone to know. Here are eight of the main benefits of getting life insurance.
1. Create A Legacy
One of the most common reasons people purchase life insurance is to create a legacy. A life insurance policy can be used to fund a charitable gift, pay for estate taxes, or provide inheritance money for loved ones. An insurance that replaces your income when you die will also allow your family to maintain their standard of living. For example, if you are the primary breadwinner in your family, life insurance can ensure that your spouse and children will be able to keep their home and continue paying for things like tuition and other expenses. Also, if you have a business, life insurance can be used to buy out a partner or provide funding for a successor.
2. Protect Your Family
Another important benefit of life insurance is that it can protect your family from financial hardship if you die unexpectedly. If you are the primary breadwinner in your family, life insurance can ensure that your spouse and children will be able to maintain their standard of living. For example, if you are the primary breadwinner in your family, life insurance can ensure that your spouse and children will be able to keep their home and continue paying for things like tuition and other expenses. Also, if you have a business, life insurance can be used to buy out a partner or provide funding for a successor.
3. Save on Taxes
Life insurance can also be used as a tax-advantaged savings tool. If you have a whole life insurance policy, the cash value of the policy grows tax-deferred. This means that you can withdraw money from the policy (up to the amount of premiums paid) without paying any taxes. You can also borrow against the cash value of your policy tax-free. Additionally, life insurance death benefits are generally income tax-free.
4. Supplement Your Retirement Income
If you have a life insurance policy with cash value, you can use it to supplement your retirement income. For example, you can take out loans against the cash value of your policy or make withdrawals (up to the amount of premiums paid). Or, if you have a whole life insurance policy, you can use the cash value to pay for things like long-term care expenses or estate taxes. Also, if you have a life insurance policy that is not needed to cover your family’s expenses, you can cash it in for its surrender value.
5. Pay Off Debt
If you have a life insurance policy with cash value, you can use it to pay off debt. For example, you can take out a loan against the cash value of your policy to pay off credit card debt, a mortgage, or other loans. Or, if you have a whole life insurance policy, you can use the cash value to pay off debt. There are also many ways to structure your life insurance policy to make it an effective debt-payment tool. For example, you can name your life insurance policy as the payee on a loan or credit card. Or, you can use the cash value of your policy to pay off a mortgage or other debt.
6. Build Cash Value
If you have a whole life insurance policy, the cash value of the policy grows tax-deferred. This means that you can withdraw money from the policy (up to the amount of premiums paid) without paying any taxes. You can also borrow against the cash value of your policy tax-free. Additionally, life insurance death benefits are generally income tax-free. For example, if you have a $500,000 whole life insurance policy with a 5% cash value growth rate, the cash value of the policy will grow to $1,000,000 after 20 years. And, if you don’t need the death benefit, you can surrender the policy for its cash value.
7. Hedge Against Inflation
Another benefit of whole life insurance is that it can help hedge against inflation. This is because the death benefit of a whole life insurance policy increases at a rate that is equal to the policy’s declared interest rate, which is often higher than the rate of inflation. For example, if you have a $500,000 whole life insurance policy with a 5% interest rate, the death benefit will increase to $1,000,000 after 20 years. Inflation also affects the cash value of whole life insurance policies. This is because the cash value of a whole life insurance policy grows at a rate that is equal to the policy’s declared interest rate, which is often higher than the rate of inflation. For example, if you have a $500,000 whole life insurance policy with a 5% cash value growth rate, the cash value of the policy will grow to $1,000,000 after 20 years.
8. Pass on Your Wealth
If you have a health insurance and life insurance policy, you can use it to pass on your wealth to your beneficiaries. For example, if you have a $500,000 life insurance policy and name your spouse as the primary beneficiary, she will receive $500,000 tax-free upon your death. Additionally, if you have a whole life insurance policy, you can use the cash value of the policy to fund a trust for your beneficiaries. This can be an effective way to pass on your wealth while minimizing estate taxes. And, if you have a life insurance policy, you can name a charity as the beneficiary of the policy. For example, if you have a $500,000 life insurance policy and name the American Red Cross as the beneficiary, they will receive $500,000 upon your death. This is a great way to support a cause that is important to you.
Life insurance provides many benefits that can be used in a variety of ways to meet your financial needs and goals. Whether you’re looking for a way to pay off debt, build cash value, hedge against inflation, or pass on your wealth, life insurance can help you achieve your objectives.