Insurance

Life Insurance

Reasons for life insurance vary

The reasons for purchasing life insurance are highly personal and depend on an individual’s financial situation and family structure. Common motivations include:

• Leaving a legacy: Providing an inheritance to children, grandchildren, or a favorite charity.
• Income replacement: Ensuring a spouse or family can cover living expenses and maintain their lifestyle if the primary earner passes away.
• Debt relief: Covering outstanding debts, such as a mortgage, private student loans, or other personal debts, so they do not become a burden on loved ones.
• Short-term goals: Using term life insurance to cover temporary obligations like business loans or to provide coverage during the years of raising children.
• Long-term financial planning: Using permanent policies to fund retirement or college expenses via the policy’s cash value. 

“Living benefits” can be a game-changer

Living benefits are features, often added as optional riders to a policy, that allow a policyholder to access their death benefit while still alive under certain circumstances. These features are a significant evolution in life insurance, moving it beyond a death benefit-only product. 

• Examples of living benefits:
  • Accelerated death benefit rider: Allows access to a portion of the death benefit if you are diagnosed with a terminal illness.
  • Chronic illness rider: Lets you access funds if you become chronically ill and cannot perform daily living activities.
  • Critical illness rider: Pays out a lump sum if you are diagnosed with a specific critical illness, such as a heart attack or stroke.
  • Cash value: Permanent policies like whole life insurance include a savings component that can be used during your lifetime. 

The value of life insurance beyond the death benefit

Modern life insurance policies, particularly permanent ones, offer multiple uses as part of a comprehensive financial plan. 

• Retirement planning: Some permanent policies build cash value that grows tax-deferred and can be accessed for supplemental retirement income.
• College planning: The cash value can also be used to help fund a child’s or grandchild’s education.
• Tax advantages: The death benefit is generally paid out to beneficiaries federal income tax-free. Some permanent policies also allow for tax-deferred cash value growth. 

Dangers of letting term policies expire

For those with ongoing financial needs, letting a term policy expire can be a serious issue. 

• The risk: If you outlive your term policy and still have dependents or financial responsibilities, you will no longer have coverage.
• Affordability issues: If you are older or in poor health, renewing a term policy or purchasing a new one can be extremely expensive.
• The solution: Many term policies include a conversion option, allowing you to convert to a permanent policy before the term ends, often without a new medical exam.