In case you die unexpectedly, your life insurance policy would provide a financial safety net for your loved ones. According to the Insurance Information Institute (III), the two main types of life insurance coverage include term and permanent life insurance.
Permanent policies usually have two key elements: death benefit and cash value accumulation. Cash value is the part of your life insurance policy that generates interest and that you may borrow against or withdraw in emergencies.
Conversely, term policies provide the death benefit if the insured passes on within a specified period. Because term life insurance usually covers a shorter period, it typically costs less than the other option. However, it doesn’t offer cash value accumulation. However, your insurer may allow you to switch your term insurance plan to a permanent policy in the future.
With that in mind, here’s are 6 powerful benefits of life insurance.
Protect Financial Well-being
If your loved ones depend on your livelihood to pay for daily expenses, monthly bills, and other necessities, life insurance can fill the financial gap you’ll leave in the event you pass on. Your policy’s death benefits can cover debts such as car loans, credit cards, and mortgages and thus ease the financial burden that your dependents might otherwise face. It can also enable your spouse to be a stay-at-home parent or spend more time caring for your kids. Your life insurance payout can also cover your kid’s or grand kid’s college education.
Leave an Inheritance to Loved Ones or Charity
You can get a life insurance policy with the aim of endowing the death benefits to your loved ones as an inheritance. If you want to give the sum to a specific person or entity, you should name them in your policy as the beneficiary. Additionally, you can use life insurance as a tool to amplify your charitable giving. You can make a larger gift than you otherwise could by naming your favorite charity as the beneficiary of your policy.
Pay Lower Taxes and Protect Your Assets
Because life insurance payouts are not taxable income, your beneficiaries would not necessarily have to disclose the money received in their tax returns. Moreover, your heirs may need to pay prohibitive estate tax after receiving their inheritance. Therefore, if you have a business that you want to hand over to the next generation, your life insurance can cover these estate taxes and thus ease the tax burden that might otherwise financially overwhelm the heirs of the business.
Supplement Retirement Income
If you carry permanent life insurance, you can usually access your policy’s accumulated cash value through withdrawal for emergencies and policy loans. For instance, your policy’s cash value can be a useful supplemental income once you’ve retired.
Get Coverage for Terminal and Chronic Illnesses and Your Final Expenses
Many life insurance firms offer policies with riders/endorsements that can adjust or enhance your coverage. Some of the popular endorsements include:
- Accelerated death benefit: This rider ensures your policy covers your care in case you’re diagnosed with a terminal or chronic illness.
- Waiver of premium due to disability: This rider enables you to keep your coverage even if you’re unable to pay premiums due to a disability.
Your policy can also cover your final expenses. As of 2019, the median expenditure on funerals, including burial and viewing, was $7,640, according to the National Funeral Directors Association (NFDA). Since many Americans lack enough savings to even pay for an emergency expense, paying for a funeral out of pocket can be an overwhelming financial burden. Your life insurance payout can cover your burial expenses and thus ease your loved ones’ financial burden.
Attract, Retain and Protect Key Employees
If you’re a business owner, you can use life insurance to protect your business against the consequences of losing a critical employee or business partner. While, over time, you can replace anyone, some of your employees are more important to your business operation than others.
Key people in an organization may include employees with proprietary skills, employees with difficult-to-find and unique skill sets, and employees with vital relationships with clients, among others. By ensuring such employees, you’ll protect your business from the short-term financial consequences of that individual being incapacitated or passing on unexpectedly. Take note that tying your group life insurance coverage to a vesting schedule can also help you attract and retain talented employees.
The policy’s cash value grows tax-deferred. Moreover, your employee can withdraw or borrow against the policy’s cash value if the need arises. The employee also sets the payout and the investment strategy for the life insurance policy. Such deferred compensation programs are robust incentives, especially when one wants to hire and retain key employees. Besides, this type of life insurance policy offers a powerful safety net to an employee’s loved ones and can be an essential part of their retirement package.
Funeral expenses, keeping up with the mortgage payments, and staying on top of bills and daily expenses can be overwhelming. With the right life insurance policy, you can be assured that your family will be fine even when you’re not there to take care of them. While death can be a sensitive topic to ponder on, you can secure your family’s financial future through life insurance.
Contact our life insurance experts at Northeastern Group Ltd for a life insurance policy that fits your needs. We are here to assist you with all your coverage needs today!
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