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5 Life Insurance Benefits You Should Know

Life insurance is often overlooked, but it should be part of your financial plan.

It can be essential to protecting your family financially after a tragedy, yet many people go without it.

1. Life Insurance Payouts Are Tax-Free

If you die while your policy is in force, beneficiaries receive a lump-sum death benefit. Life insurance payouts are not considered income for tax purposes, and beneficiaries need not report the money on their tax returns.

2. Dependents Will Not Have to Worry About Living Expenses

Many experts recommend coverage equal to seven to ten times annual income. With a policy or policies that size, those depending on your income should not have to worry about living expenses or other major costs. For example, coverage could pay for your children's college education so they do not need student loans.

3. Life Insurance Can Cover Final Expenses

The national average cost of a funeral with viewing and burial was $7,640 as of 2019. Many Americans lack enough savings even for a $400 emergency, so funeral costs can be a substantial burden. With life insurance, beneficiaries can pay burial expenses without using their own savings or credit.

Some insurers offer final expense policies with low coverage amounts and relatively inexpensive monthly premiums.

4. You Can Obtain Coverage for Chronic and Terminal Illnesses

Many insurers offer endorsements, also called riders, to enhance or adjust coverage. An accelerated benefits rider lets you access part or all of the death benefit in certain circumstances. For example, some policies allow you to use it for care or other expenses while alive if you are diagnosed with a terminal illness and expected to live fewer than 12 months.

5. Policies Can Supplement Retirement Savings

If you buy a life insurance policy that is whole life , universal life or variable life , it may build cash value as well as provide a death benefit. As cash value grows, you can use it for expenses such as a car or home down payment. You can also draw on it during retirement if needed.

However, life insurance should not replace traditional retirement accounts such as a 401(k) or IRA. Cash value insurance also costs considerably more than term life, which has no savings component and provides only a death benefit.

Key Takeaways

  • Life insurance is not just for the wealthy. Regardless of income, it can ensure loved ones can make ends meet if you die, and it may be more affordable than you think. If you decide to obtain coverage, consult our specialists.
  • Nearly half of American adults have no life insurance, often believing they cannot afford it.
  • Many people greatly overestimate insurance costs.
  • Besides providing financial security for loved ones, life insurance offers tax benefits and other uses.