Many people ignore the importance of life insurance when it comes to protecting their families in times of tragedy. One reason people do not have life insurance is they assume it is too expensive, according to a survey from 20211. According to the survey, the majority of respondents guessed $1,000 or more per year when asked how much a $250,000 term life policy would cost a healthy 30-year-old. Average annual costs are closer to $160.
Life insurance provides a number of useful benefits. Among them:
1. Tax-free payouts from life insurance
Upon death, your beneficiaries will receive a lump sum death benefit if you have a life insurance policy. The money your beneficiaries receive from life insurance isn’t considered income for tax purposes.
2. Living Expenses Will Not Be a Problem for Your Dependents
It is recommended that you have life insurance that is seven to ten times your annual income. A policy (or policies) of that size should cover the living expenses of the people who depend on your income. Your insurance policy could cover the cost of your children’s college education, allowing them to avoid taking out student loans.
3. It is possible to cover final expenses with life insurance
It is estimated that the national median cost of a funeral with a viewing and a burial was $7,848 as of 2021. Since many Americans do not have enough savings to cover even a $400 emergency expense, the cost of a funeral can be very high.
Your beneficiaries can use the money from your life insurance policy to pay for your burial expenses without having to use their own savings or credit cards.
Final expense policies are offered by some insurers. The monthly premiums for these policies are relatively low and the coverage amounts are limited.
4. It is possible to cover chronic or terminal illnesses
Your life insurance policy can be enhanced or adjusted with endorsements, also known as riders. Under certain circumstances, you can access some or all of your death benefit through an accelerated benefits rider. Depending on your policy, you may be able to use your death benefit while you’re still alive to cover your care or other expenses if you are diagnosed with a terminal illness.
5. Investing in retirement policies can help you save for retirement
In addition to providing death benefits, whole, universal, or variable life insurance policies can accumulate cash value. Over time, you can use the cash value to cover expenses such as a down payment on a home or buying a car. During your retirement years, you can access it as needed.
An individual retirement account such as a 401(k) or IRA should not be replaced by a life insurance policy. Moreover, cash value life insurance is much more expensive than term life insurance, which does not have a savings component.
Conclusion
The wealthy don’t have to buy life insurance. Regardless of your income level, life insurance can help your loved ones if you were to pass away. In addition, you may be able to get affordable life insurance. See Investopedia’s list of the top life insurance companies of 2022 if you decide to get coverage.
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