Life, Disability, Health and Accident, HMO and Long-term Insurance

1. Protect your loved ones

At a very basic level, life insurance can function as a form of income replacement. Whether or not you’re the main source of income for your family, it’s likely that you help cover the cost of rent, mortgage, groceries, utilities, child care, and other household necessities. For this reason, many insurance experts recommend that people take out a life insurance policy that’s equal to 10-15 times their current income. This may help your loved ones maintain their current lifestyle after you’re gone, reducing their financial burden following your death.

2. Help provide financial reassurance

One of the top benefits of life insurance is the life assurance that comes with it. There’s an inherent comfort in knowing that your finances are handled. According to insurance expert Laura Adams, “The purpose of life insurance is to make sure that people who depend on you, such as a spouse, partner, children, and aging parents, wouldn’t be hurt financially after your death.

3. Help pay off debt

Unfortunately, debt lives on even after we pass away, except for some federal student loan debt. The average American has $90,460, while people from ages 40 to 55 carry even more, with an average of $135,841 in debt.3 Life insurance can be used to help pay off student loans, mortgages, credit card debt, auto loans, and more.

4. Help protect your business

When your business is your lifeblood, you need to have safeguards in place to protect it. Business owners and entrepreneurs can look to life insurance to fund business succession plans. Using life insurance and buy-sell agreements upfront can help ensure continuity of the business. Whether you have two partners or multiple partners, you want to make sure that the business is passed to those who have an interest in it.  In addition, life insurance can potentially reduce business taxes, protect against the loss of key staff, and help attract and retain valuable employees.

5. Help pay for college tuition

The costs of college keep rising and it’s inherent on you to find ways to keep up. The average cost of college varies from around $9,500 per year for a public four-year in-state college to $32,000 per year for a private four-year college.3 In addition to providing a death benefit that could be used for education, the cash value in permanent life insurance policies provides access to funds for educational expenses while alive. Families could withdraw some cash value or possibly take a policy loan.1 Withdrawals are generally tax-free, and life insurance policies are not currently counted on the FAFSA as an asset. 

6. Help you save for retirement

Since permanent life insurance has a cash value component, you can think of it as a potential source of supplemental retirement income. Life insurance can be a portion of your overall financial plan that allows you to put in net premiums on a tax-deferred basis, and unlike other vehicles, you get to control the flexibility. If properly put together and funded, you can take out a tax-free income over a period to supplement your retirement.4 It is important to consider all options for retirement income such as qualified plans, IRAs, the tax treatment of contributions and distributions, and the fees charged for various financial products.

7. Help cover end-of-life expenses

Final expenses can come as a shock to even the most well-prepared family. They can cost anywhere from $8,000-$10,000 — not including other end-of-life expenses such as medical bills. Your funeral costs may be covered entirely by taking out a final expense insurance policy.5

8. Aid in estate planning

Many people view estate planning as something to be addressed later in life or only after they have accumulated substantial wealth. The reality is that anyone who owns a home, has children, or contributes to a retirement account may benefit from an estate plan. Estate planning is quite different from end-of-life expenses in that it involves securing an attorney to close out any remaining accounts in the decedent’s name and officially report the death to the county and IRS. “A life policy can be used as an estate planning tool to make sure your heirs could cover legal fees and taxes,” says insurance expert Lauren Adams. Many people fail to realize that some descendants may still owe taxes to the IRS, and a life insurance policy can help them cover these costs, so they are not incurring unnecessary financial burden.

9. Help with charitable planning

By designating a charitable organization as the beneficiary of a life insurance policy, people can leave an “amplified” gift for the causes they believe in. The premiums paid are only a small portion of the total death benefit paid, which allows individuals to leave a larger and more meaningful gift for the organizations they support. “If you want to leave a financial legacy with particular organizations or charities, you can include them as a life insurance beneficiary,” says Adams. This is a great way for policyholders to not only ensure their loved ones are taken care of, but to also make sure they can still contribute to the causes they care about following their death.