When you think of life insurance, perhaps the term "peace of mind" enters your thoughts. While it is true that life insurance can bring you peace of mind in knowing your family is taken care of financially after you die, the benefits go well beyond personal assurance. Life insurance can benefit you whether you are single, newly married, have a family with children or take care of elderly parents. Keep reading for Benzinga's breakdown of the additional benefits of life insurance.
What is Life Insurance?
A life insurance policy protects your loved ones by paying a death benefit to your beneficiary or beneficiaries after you die. You can purchase life insurance through your employer or the private insurance market. Several types of life insurance are available, and it is not difficult to find a life insurance policy that fits your individual needs and budget.
What Types of Life Insurance Are Available?
Before you decide on the type of life insurance coverage that best fits your situation, we'll look at the different types of life insurance and the unique benefits of each type. The two main types of life insurance are term life and whole life.
Term life provides benefits for a set policy term, usually 20 or 30 years. Whole life is coverage for your entire life and is more expensive than term life, but several variations of the whole life insurance policy give you choices based on your life circumstances. With whole life insurance, you can accumulate cash value which we'll discuss in greater detail below.
Term Life: Term life insurance policies cover a specific number of years, anywhere from 10- to 30-year policy terms. The term life policy pays a death benefit to your selected beneficiary but does not offer any cash value accumulation.
One advantage of the term life policy is the substantially more affordable price than whole life insurance. If you are on a budget, term life could be a good choice until you can afford a more substantial policy. Some term life policies offer the option to convert to a whole life policy at the end of the policy period, so that is worth considering.
Whole Life: Whole life insurance, sometimes called permanent life insurance, covers you for your entire life. In addition to paying out a death benefit, it also accumulates cash value which you can borrow against. The whole life policy has a fixed interest rate with level premiums during the life of the policy.
Universal Life (UL): Universal life insurance is a whole life policy with a flexible premium option. The policy has a savings option where you can make additional payments that are credited to the cash value of the policy.
The cash value earns an interest rate that increases over the policy's life, and the death benefit also increases over time. One thing to remember with universal life insurance — upon your death, your beneficiary only receives the policy's face value. The life insurance company keeps any accumulated cash value.
Indexed Universal Life (IUL): If you are looking for a way to invest toward your retirement, an indexed universal life insurance policy may be ideal for you. An indexed universal life insurance policy will allow you to designate interest earned to an interest-bearing investment account. The interest earned on the IUL policy allows the cash value to continue to grow with the benefit of tax-deferred interest. You also can use the interest to make the premium payments if you ever want to postpone making payments for a while.
Guaranteed Universal Life (GUL): The Guaranteed Universal Life Insurance Policy (GUL) is somewhere between term life and a whole life policy. The coverage is age-specific and not written in year term periods. You choose the age the coverage ends, and typically it is for policyholders up until their 80s. The policy is more affordable than whole life coverage and also has a cash value option. The GUL is a way to get permanent life insurance (you choose when the coverage ends) while only paying a little more than term insurance prices.
Variable Universal Life (VUL): The VUL policy is a whole life policy with a built-in savings account. The savings account is divided into sub-accounts that are invested. You have the potential for higher investment earnings, but it is also riskier due to market fluctuations. Your premium payments go into the savings account, which funds the subaccounts. The savings portion of the policy is separate from the death benefit. If the investments of the VUL policy don't go away, neither does the cash value of the policy. However, the death benefit remains intact.
What Are The Benefits of Life Insurance?
Here are some of the main benefits of life insurance.
You can't put a price on your family's financial security. If you are the breadwinner, your family may have a hard time coming up with the money for day-to-day living expenses after you die. Life insurance provides for your family's needs and takes care of your financial obligations after you are no longer there.
Whole life policies provide a cash value benefit that can provide needed income during difficult times or pay for large purchases like a new house or car. You can also use the funds to pay for college tuition or even start a new business. The possibilities are endless. The cash value of a whole life policy can help you meet your financial goals in life.
Tax Free Income
Not only can life insurance provide your family with peace of mind, most life insurance payouts aren't considered taxable income, so you don't have to worry about putting your family into a higher tax bracket just because they were the beneficiary of your life insurance policy. Accrued interest may be taxable, though. Learn more with this guide from the IRS.
Living Benefits for Chronic or Terminal Illness
A cancer diagnosis is an emotionally devastating event, but the financial challenges add to your worries. For example, if you can no longer work because of a cancer diagnosis, how will your bills get paid? Some whole life policies allow you to add coverage for a terminal or chronic illness such as cancer and use the cash value of your policy to pay for living expenses while you are on the road to cancer recovery.
Life Insurance Conversation for Eldercare
You never know what the future holds and when you may require long-term care services such as assisted living or an Alzheimer's care unit. You can convert some life insurance policies into eldercare services by selling the policy for an agreed-upon amount to a third party for elder care services. Life insurance conversion isn't the same as long-term care insurance, a supplemental type of health insurance.
Best Life Insurance Carriers
Deciding on a life insurance policy is one of the most significant decisions you will ever make for your family's financial security, but don't feel overwhelmed with the process of choosing life insurance. Benzinga has done the homework for you and assembled a list of the best life insurance carriers to help you find the best coverage for the most affordable price.
- securely through Ladder Life Insurance's websiteBest For:Adjustable coverage
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers – for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products. Coverage amounts vary by state.
- securely through Haven Life Insurance's websiteBest For:Under Age 64
Haven Term is a Term Life Insurance Policy (ICC21 Haven Term in certain states, including NC) issued by C.M. Life Insurance Company (C.M. Life), Enfield, CT 06082. In New York (DTC-NY) and California (DTC-CA), it is issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001.
Can You Put a Price on Peace of Mind?
Having life insurance sounds like a better and better idea the more you read about it. Not all of the benefits are monetary — some are intangible, like having peace of mind. You can rest easy knowing your family won't have to worry about final expenses after you are gone. Check back with Benzinga often for more information on life insurance and which plans might be more appropriate for you.
Frequently Asked Questions
Is it worth paying for life insurance?
The financial security you gain in return can far outweigh the cost of paying for life insurance. Not only will your loved ones receive a death benefit after you die, but you can also borrow against the cash value of a whole life policy.
How much is a $500k life insurance policy?
The price for a $500K life insurance policy depends on the carrier and the type of insurance. For example, term life is cheaper than universal or global life and premiums for life insurance are more affordable when you are young and healthy. For example, a healthy 35-year-old male could expect a premium somewhere around $400 to $500 per year for a 20-year term life policy. Whole life is more expensive because of the cash value of the policy.
Are life insurance payouts taxable?
Typically, the payout benefit isn’t taxable but accrued interest is. Learn more with this guide from the IRS.
Benzinga crafted a specific methodology to rank life insurance. To see a comprehensive breakdown of our methodology, please visit our Life Insurance Methodology page.