What are the benefits of life insurance?

Most people understand the primary benefits of having life insurance: Your family gets money if you die unexpectedly — and you get the reassurance of knowing they’ll have resources to help carry on without you. While those benefits are generally true for all kinds of life insurance, there are other important advantages depending on the specific type of policy and amount of coverage you get.

It can help take care of your family if something happens – but that’s only one of the benefits of life insurance.

This article will help you better understand three important questions:

• What are the many benefits to having life insurance for you and your family?

• What are the benefits for different types of policies?

• How can you get more “benefits for the buck” when buying life insurance?

The many benefits of having life insurance

All life insurance can give you financial confidence that your family will have financial stability in your absence. But generally, the more life insurance you have, the more benefits it will provide to your family when needed. For example, some people receive a nominal amount of life insurance — say $25,000 — through their workplace. While that theoretically sounds like a nice sum of money, in practice it may only be enough to cover funeral expenses and a few mortgage payments. But with a larger coverage amount, your family can realize far more benefits, such as:

• Income replacement for years of lost salary

• Paying off your home mortgage

• Paying off other debts, such as car loans, credit cards, and student loans

• Providing funds for your kids’ college education

• Helping with other obligations, such as care for aging parents

Beyond your coverage amount, different kinds of policies can provide other benefits as well:

• There are tax advantages of life insurance, because death benefit payouts are generally income tax free; and some policies have features that can help transfer money to heirs with fewer tax liabilities.¹

• Some policies have a cash value that accumulates over time and can be used to pay premiums later,² or even tapped into to help supplement retirement income.³

• Life insurance can often be bundled with other types of protection, such as disability insurance to help replace a portion of your salary if you’re unable to work.

• Many policies have valuable “riders” or contractual provisions that provide benefits before death.⁴

The benefits of different kinds of life insurance

There are two basic kinds of life insurance: term and permanent like whole life. With a term life policy, you pay a specific premium for a defined term (say 10 years). If you die during that time, a life insurance death benefit is paid to your beneficiaries – but when the term is over you must get new coverage or go without. A whole life policy is permanent life insurance that lasts your entire life as long as premiums are paid.⁵

What are the benefits of term life insurance?

• Typically, lower cost

• Simpler to understand – it’s purely an insurance product

• It may be convertible to whole life – but find out before you buy

• If you no longer need it or can’t afford it, you can walk away without losing anything more than the premiums already paid

What are the benefits of whole life insurance?

• Permanent life insurance

• Contains an important cash value component that you can take out or borrow against

• Can provide tax-efficient estate planning benefits

How to get more benefits – and value – when buying life insurance

Generally, the most cost-effective way to buy life insurance is to do it when you are younger and healthier . Life insurance companies generally give younger customers lower rates for reasons that are easy to understand:

• They tend to have a longer life expectancy

• They are less likely to have been diagnosed with a serious disease

• They are likely to pay premiums over a longer number of years

Not in your twenties anymore? Don’t worry. There are still a lot of affordable options. But if you want to get the most value out of each premium dollar, it pays to do your homework and figure out exactly what you want from your coverage. Most policies have riders that can add worthwhile benefits for a relatively small added amount. Two of the most popular riders include:

• Accelerated death benefit: This rider can help pay for needed care of a diagnosed chronic or terminal illness. While this can be very useful in a time of need, you should also know that funds paid out will typically lower the death benefit paid to your family.⁶

• Disability waiver of premium: This valuable rider gives you the ability to stop paying premiums if you have a disability while keeping your coverage.⁷

There are other kinds of riders you should know about as well, so talk to an experienced professional – like a Guardian financial professional – before deciding to purchase one policy or another. You should also find out about other ways to control your policy costs, including:

• Purchasing a joint policy for you and your spouse

• Getting insurance at group rates through your employer

• Purchasing a whole life policy that accumulates cash value, which can be used to reduce monthly premium costs later