The Advantages and Disadvantages of Life Insurance
Life insurance protects your beneficiaries in the face of your death. You have many options concerning the type of policy you take out including term and permanent life insurance policies. Regardless of the type of policy you take out, there are advantages and disadvantages to owning life insurance.
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Keep reading to help you decide if life insurance is right for you.
The Advantages of Life Insurance
Life insurance has many advantages, which should weigh in on your decision.
The largest and most obvious benefit of life insurance is the financial protection it provides. Whether your beneficiaries need the coverage to pay for your final expenses or to continue living (if you were the main income earner), it provides them with the money they need.
In exchange for your small monthly payments, called premiums, your loved ones receive either a lump sum payment or timed payments to help keep them afloat upon your passing. It helps alleviate the financial stress that funeral and burial expenses cause as well as can help your family members keep their home or the lifestyle they were used to while you were alive.
It’s normal to worry about how our loved ones would fare in our absence, but with life insurance, you can eliminate that worry. Knowing that your loved ones will be okay financially should you die prematurely can take a huge weight off your shoulders.
You can rest assured knowing that you are still providing for your family should the untimely occur, by paying your premiums every month. Whether you choose a term life insurance policy or whole life insurance policy, it doesn’t matter – what matters is the fact that your beneficiaries will have money available to them to help them go on with their lives in your absence. This can help you live your life with less worry and more enjoyment.
Life insurance isn’t a one-size-fits-all approach. You can buy a policy that fits your budget and the needs of your loved ones upon your passing. You can find policies that cost less than $50 a month as well as those that cost several hundred dollars per month. You choose the amount of coverage as well as the premium that you can comfortably afford. You can also cancel most policies, should you be unable to afford the premiums any longer, but always know the cancelation policies upfront before taking a policy to ensure that there isn’t a penalty for doing so.
Permanent Life Insurance is Like a Savings Account
If you purchase permanent life insurance, you get more than life insurance benefits – you also get cash value, which can be like a savings account or investment account. Some people use this as their retirement savings, enjoying the benefits of some of their life insurance while they are still alive.
If you do redeem some of the cash value of the policy, it comes off the top of the death benefit your loved ones receive, but people that make it this long typically don’t need as large of a death benefit for their beneficiaries. Beneficiaries need the largest death benefit when they are young and need to support young families. As they get older, most people become more financially secure and have fewer bills, such as a mortgage, which helps decrease the amount of funds needed for life insurance.
The Disadvantages of Life Insurance
As amazing as life insurance sounds, it does have its downsides.
You Should be Healthy for Affordable Premiums
Most life insurance policies require some type of medical exam to get the coverage. If you are sick, have a chronic disease, or live a risky lifestyle, your premiums may be more expensive than you can afford or would prefer.
Life insurance companies create premiums based on the risk of a payout. Someone with a chronic disease or that skydives for a living, for example, poses a larger risk of an early payout than someone that is basically healthy with no known illnesses or risk factors for heart disease or other life-threatening illnesses.
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Cash Accumulation on Whole Life Policies is Low
While it’s a great benefit to earn interest on your whole life insurance policies, the amount is typically pretty low compared to other investment vehicles. If your life insurance is an add-on to other retirement investment vehicles you have, then it’s a great idea. If you use the money you would otherwise invest in other retirement investments to pay for life insurance, though, you could be losing money.
Premiums can be Costly
Many young people are stuck with term life insurance because of the affordability of the premiums. Life insurance companies typically offer more affordable premiums for term life insurance knowing that it’s for a temporary period versus whole life insurance, which lasts your entire life.
If you opt for a term policy when you are young, though, when it expires and you are still alive, you are stuck finding another policy. At this point, you are older and potentially less healthy (not always the case though). This means higher premiums to insure you. Young people often get stuck between a rock and a hard place because they can’t quite yet afford whole life insurance premiums, but term life only provides temporary coverage that will only get more expensive.
You May Not Need It
Life insurance isn’t a requirement. Many people buy it because ‘everyone else is doing it.’ That’s not a reason to do so. If you are financially secure in other areas of your life, you may not need to pay for life insurance premiums.
Look at the big picture. What are your debts? What would you leave your loved ones with upon your passing? Could they afford the mortgage? Could they afford burial expenses? Could they live their life they are used to with you gone? These are the questions you should ask yourself before buying life insurance. If you have accounts elsewhere with enough money to help your loved ones get by, you may pay for life insurance unnecessarily.
Life insurance has its pros and cons. Everyone has different needs regarding life insurance, whether it means buying a term policy, whole life policy, or no insurance at all. Go over all of your options and look at the big picture, down the road. Making an informed decision now can help your loved ones be financially healthy even upon your passing.
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