This article covers:
• Advantages of life insurance like protecting your family
• Disadvantages of life insurance like expensive cost for some
• Importance of acting early for life insurance
We all know that insurance pays out “benefits” in the case of a claim (auto or home insurance) or a death (life insurance), but you might not know all the benefits in a more general sense—the advantages, if you will—of life insurance.
In this article, you’ll learn some of the pros (and cons) of getting life insurance so that you can figure out what is going to be best for you and your family.
Advantages of Life Insurance
With all the expenses that you face on a daily and monthly basis, life insurance may seem like an extravagance that isn’t worth the additional expense. You’re in good health now and have a steady income—why should you pay for life insurance?
A better way to look at it is considering all the advantages you can receive from having life insurance. Obviously, no one ever wants their family to have to use their life insurance policy, but if such an unfortunate circumstance would happen, you want to be prepared.
Protect Your Family
The greatest benefit you’ll receive from having a life insurance policy is that you can feel safe and secure knowing that your family is protected in the event of an untimely death. This is especially important if you as the holder of the life insurance policy are the single breadwinner of a household, particularly if you have young children.
You don’t want to put your family in a bad financial situation if you were to pass away or experience a critical illness. It will already be challenging enough just dealing with the emotional aspects of your death or illness.
If you choose to purchase a term life insurance policy, you’ll find that they are quite inexpensive. Depending on your health, you may be able to find policies that are as low as $10 to $20 a month.
This means for just a couple hundred dollars a year you’ll know that your family will be protected if something bad happens and will be able to take care of financial expenses for a little while without any additional stress of trying to figure out where the money is going to come from.
As a practical example, if you get a 20-year policy at $20/month, you’ll pay less than $5,000 if you end up paying over the entire 20-year term, but will have over $100,000 in coverage. Numbers like these illustrate how reasonably priced life insurance can be.
Cash Value Component
If you are willing and/or interested in paying more, you can opt for permanent life insurance with a cash value component. This means that after a specific duration of time, you’ll be able to use the money from the cash value component.
You’ll pay in and receive a benefit even if there isn’t a death or critical illness. If you like the idea of knowing that you’ll get a benefit even if the life insurance policy isn’t used, permanent life insurance with a cash value component could be a good option for you.
Covers Costs of Final Expenses
As one specific example of how your family can use the life insurance is covering the cost of your final expenses like burial. If your children are older and/or you are less concerned about needing to provide for your family financially, you can even purchase a small policy that will cover $5,000 that your family can use for funeral expenses.
Depending on the policy, your family, however, can use the pay out of the life insurance policy—the death benefit—for anything: covering your children’s college education, paying for the mortgage on your house, or any other big financial expenses your family might need covered in the event of your death.
Pay For Living Expenses with Critical Illness
Some life insurance policies have a critical illness component that will help offset expenses in the event of a critical illness. This can relieve a huge amount of financial burden on your family.
Even if your policy doesn’t have this component, standard life insurance policies should cover terminal illnesses where an individual is expected to die within 12 months of diagnosis. Thus, your family will be well protected financially whether it is an unexpected death or unexpected terminal illness.
As with anything in life, purchasing a life insurance policy can also have its disadvantages, but there’s a good chance, especially if you are the single breadwinner of your household, that the advantages will outweigh the disadvantages.
Can Be Expensive or Challenging to Get
If you are older or not in good physical shape, it may be challenging for you to find life insurance policies, and, if you are able to find one, it will likely be very expensive. If you’re in a tight financial position already, a life insurance policy might be cost-prohibitive if it’s too expensive.
May Not Be a Good Investment
While it’s great that you can receive a cash value benefit on your life insurance policy through a whole life policy and get some use out of the policy if there isn’t a death or critical illness, you likely would be better off to invest the money yourself. You’ll probably receive greater returns that way. Thus, the extra cost of permanent life insurance may not actually be worth it.
As the old adage goes, “the early bird gets the worm.” In the case of life insurance, this is definitely true. It’s best to act early and act now because you can lock in the best rates while you’re young and healthy.
Don’t forget to compare companies and plans and figure out what type and company is going to work best for you. After all, the life insurance policy is designed to benefit your family in the case of an unexpected death or critical illness. It makes sense then that the amount of coverage and type of plan should best suit your needs.