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 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 time2 and can be used to pay premiums later, or even tapped into to help live on in retirement.3
  • Life insurance can often be bundled with other types of protection, such as disability insurance to 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 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 last your entire life.

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 savings element known as cash value that you can take out or borrow against
  • Can provide tax-advantaged 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.5
  • Disability waiver of premium: This valuable rider gives you the ability to stop paying premiums if you have a disability while keeping your coverage.6

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

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Frequently asked questions about life insurance

What’s better: A term life policy or a whole life policy? 

It really depends on what you want: Both policies provide a death benefit, but whole life policies can provide additional benefits and offer more flexibility than term policies; also, the premiums tend to stay the same for life. Term life policies provide fewer benefits but are also less expensive – and while your premiums remain stable over the term of the policy, once it expires you can expect to pay significantly more for your next policy.

Read more: Term vs. whole life insurance (note new article, link when available)

How much life insurance do I need? 

There are general rules for determining how much life insurance you need. Typically, people want to provide enough of a death benefit to cover the lost salary and key expenses – like a mortgage – that their family will face, especially while their children are still at home.

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What are the life insurance options for seniors? 

It depends on your needs. Life insurance generally gets more expensive with age, so many seniors get policies with just enough coverage to provide for funeral expenses to avoid burdening their family. Life insurance can also be used for estate planning strategies, where it can be a tax-advantaged way to leave assets to heirs.

Is life insurance taxable? 

Generally speaking, the death benefit of a life insurance policy is not subject to income tax. If you have a $1,000,000 policy, your family will get the entire amount. However, consult your tax professional for details.

Where can I get more answers about life insurance?

Just contact a Guardian financial professional. They will take the time to learn about your needs, listen to your concerns, and explain the different insurance options that fit your situation and budget – all from a company that’s been helping protect families for more than 150 years.

If you are an employee, taking advantage of your benefits at work is a smart and affordable way to get the financial protection you want for yourself and your family. Contact your HR department to review your plan details and determine how much life insurance is available to you. Your employer may provide life insurance as a benefit, or you may opt to pay for additional life insurance through payroll deductions.

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Disclaimer

1

Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

2

Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.

3

Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

4

Riders may incur an additional cost or premium. Riders may not be available in all states.

5

The cash surrender value, loan value and death proceeds payable will be reduced by any lien outstanding due to the repayment of an accelerated benefit under this rider. The accelerated benefits in the first year reflect deduction of a one-time $250 administrative fee, indexed at an inflation rate of 3% per year to the rate of acceleration. Please see state-specific EABR Disclosure form (01-ABR-1) for complete details about the rider.

6

A Waiver of Premium rider waives the obligation for the policyholder to pay further premiums should he or she become totally disabled continuously for at least six months. This rider will incur an additional cost. See policy contract for additional details and requirements.

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