What are The Advantages of Taking Out Life Insurance?

If your budget is already tight, then you may be wondering why you should add one more expense to it by taking out life insurance. Obviously, in case of your unexpected death, your family will be protected since they are assured money to meet their needs. However, are there any other advantages to getting life insurance?

One benefit to getting life insurance is that permanent insurance policies accumulate cash value over the life of the policy. Cash value refers to the savings portion of your policy, which you can cash in if you surrender your policy. But if you want to benefit from the cash policy, you can do so without cashing it in; you can borrow against the cash value of the policy even if you don’t have a good credit history. If you don’t repay the loan, then it will simply be deducted from the death benefit paid to your beneficiary. You can also eventually use the cash value to change your policy to an annuity that pays you an income for life.

Life insurance is also essential in sound financial planning for your family. For example, benefits from a life insurance policy can be used to settle estate taxes, leaving the assets of the estate itself intact. Death benefits can also be used to pay off a mortgage, ensuring that your family will not be thrown out of their home.

There are also many tax benefits to getting permanent life insurance. The cash value of an insurance policy is not subject to current taxation and neither is the interest or other earnings. You also pay no income tax if you borrow against the cash value of the policy. Your heirs will also pay no income taxes on death benefits (this is also true for benefits paid from term life insurance).

On the other hand, term insurance can ensure that certain financial obligations, such as a mortgage or a college education, can be met in the event of the insurance holder’s sudden death, without the necessity of having to service a policy on a permanent basis. And term insurance can also have a return of premium benefit that refunds all or part of the premiums you paid, although these policies will be more expensive.

If you are partners in a business, then there are also advantages to taking out a type of life insurance called first-to-die. In this type of insurance, two individuals are ensured and the benefit is paid to the beneficiary of the first person to die. The advantage of this type of insurance is that it can help fund a buy-sell agreement to avoid a nasty dispute over control of the business.

Future generations can also be ensured a handsome financial legacy with the use of another life insurance variant called survivorship insurance in which two people (for example, parents) are insured and benefits are paid out only when the second person dies.

Whatever type of life insurance you choose to take out, the ultimate benefit may be not financial but emotional – the certainty that you will not leave your family bereft if the worst happens, and the peace of mind this brings.