Why is Life Insurance Important?
Life insurance is one of the most sought-after insurance covers in the U.S. According to statistics, 54% of Americans were covered by Life Insurance as of 2020.
Being part of this demographic is important because of the numerous benefits life insurance has to the policyholder and their family. Some include financial security for daily expenses, settling debts, reducing stress for your family once you're gone, and providing extra support through retirement.
Let's dive into life insurance, the available types, and why you should consider getting one.
What is Life Insurance?
Life insurance is a legally binding contract between the insurance company and the policyholder, promising to cover the policyholder's life against any mishap that may result in their untimely death.
Therefore, if the policyholder passes on during the policy term, the insurance company must pay a predefined amount of cash to the policyholder's beneficiaries or survivors.
These payments are made strictly according to the terms agreed upon by the insurance company and the policyholder before their death. Therefore, it can be a lump sum, annual, or monthly payment.
Some life insurance policies extend their coverage past death, covering the policyholder against terminal illnesses such as heart disease and cancer if they strike.
Types of Life Insurance
There are various types of life insurance available, each catering to various needs and preferences. The type you choose generally depends on your short-term and long-term needs. The most important choice is typically between temporary and permanent life insurance.
Term Life Insurance
Term life insurance is also known as temporary life insurance. It only lasts a select number of years before the contract expires and the insurance company is no longer legally obligated to fulfill the terms of the policy.
Common term life insurance policies last 10, 20, or 30 years. The best term life insurance policies typically balance long-term financial strength with affordability.
There are three types of term life insurance:
Decreasing term life insurance – This is a renewable term life insurance whose coverage decreases over the policy's life at a predetermined rate.
Convertible term life insurance – This is a term life insurance policy that allows the policyholder to convert it into a permanent life insurance policy.
Renewable term life insurance – This term life insurance policy gives a quote for the year the life insurance was purchased. The premiums increase annually, making them the least expensive at the start.
Permanent Life Insurance
Permanent life insurance is enforced for the policyholder's lifetime, not unless they stop paying premiums or surrender the policy. It's typically more expensive than term life insurance.
There are various types of permanent life insurance. These include:
Whole life insurance – This type of permanent life insurance accumulates cash value. Cash-value life insurance allows the policyholder to use their cash value for various purposes, such as getting loans or cash and paying policy premiums.
Universal Life (UL) – This type of permanent life insurance has a cash value component that earns interest. This policy also features flexible premiums, unlike term and whole life insurance. The premiums are adjustable over time, with either a level death benefit or an increasing death benefit.
Indexed Universal Life (IUL) – This type of universal life insurance earns the policyholder a fixed or equity-indexed rate of return on their cash value component.
Variable universal life insurance – This type of life insurance lets the policyholder invest their cash value component in a separate, available account. It also offers flexible premiums with either a level death benefit or an increasing death benefit.
6 Reasons Why Life Insurance is Important
Why should you consider getting life insurance? Are the advantages solely for your loved ones?
Here are six reasons why you should get life insurance.
1. It Helps Cater to Your Family's Daily Expenses
This is one of the main reasons why people buy life insurance. The 2021 LIMRA study shows that 63% of respondents bought life insurance to replace their income. Therefore, if you pass away unexpectedly and your family's income is cut short, life insurance fills that gap and ensures your loved ones can still afford their daily expenses.
Moreover, life insurance is paid out faster than estate. Therefore, your family can start relying on this income early without financial burdens.
2. It Helps Pay Off Debts
Certain types of debts don't go away after the debtor's death. Instead, they're transferred to your kin, meaning they may have to sell off part of the estate or give away a portion of their income to cover off.
Life insurance can help settle such debts and give your loved ones financial peace after your demise.
3. It Eases Stress for Your Loved Ones
A 2020 study showed that one in four people would feel the financial effects of losing a loved one within a month of their passing. This often leads to stress and deteriorating mental health.
Having life insurance shields your loved ones from these harmful effects, reducing their stress as they grieve your loss.
4. It Can Help Settle Mortgage
Many people buy term life insurance for a period equal to their mortgage. For instance, the longest-term life insurance policy spans 30 years, matching a 30-year mortgage loan.
Such a policy shields your family from losing the family home when you pass on since the policy can pay off the mortgage and settle your family.
5. It Leaves an Inheritance
Most people want to give their hard-earned money to their loved ones or a charitable cause. Unlike stock market investments subject to value fluctuation, life insurance is more stable, guaranteeing a great inheritance for your loved ones or beneficiaries.
As the policyholder, you can name multiple beneficiaries and how they should be allocated the inheritance.
6. Provides Extra Support Through Retirement
The right life insurance policy can also fit your retirement plan. Permanent and whole life insurance lasts the policyholder's lifetime and includes a cash value component equitable to "savings."
Therefore, upon retirement, you can withdraw the cash value for various purposes, such as clearing your mortgage, investing in a business, or putting it towards your long-term care services.
Get Life Insurance from a Trusted Insurer to Secure Your Family's Future
Life insurance is a great insurance cover that benefits your loved ones and you, as the policyholder. You're assured of your family's financial future in your untimely demise and can still use the cash value component to secure your retirement once you retire.
Contact a trusted insurance provider today to get the best life insurance policy for you and your loved ones.