Life insurance is such a subject that has all the elements of a perfect storm for poor decision making. While it’s expensive and boring, it’s complicated and also deals with a subject that we rarely wish to confront. There are people who don’t purchase enough coverage on their life insurance policies and many among them end up in making critical mistakes in life and then buying life insurance that isn’t optimal. As per studies by the Life Insurance and Market Research Association, more than 30 million Generation X and Y households needed more life insurance than what they had. Have a look at some compelling benefits of life insurance policies.
- Risk can be transferred: God forbid, but fatal accidents can occur anytime and such unfortunate situations have the potential to cause a dire financial crisis for your family members who can soon find themselves in a dilemma. Hence, it makes full sense to insure the life of the breadwinner o the family. If you opt for traditional term life insurance policies, you can basically get a payment in the case in which an insurance condition is met or when the insured person suddenly dies.
- Life insurance is a form of investment: Unlike term life insurance policies, that frame the conventional understanding of life insurance, the whole life insurance policies combine different benefits with a savings account as well. With whole life insurance policies, your premiums consist of 2 parts. While one part pays the insurance company for the risk of insurance, the other part builds up a cash reserve. This reserve builds up with time as you continue paying your premiums. The cash value is always guaranteed by the insurance company.
- Tax breaks: The investment component in a whole life insurance policy is invested by the insurance business and they’re most likely invested in stocks, bonds or even in a combination of both. This build-up in the savings account is tax-deferred, thereby allowing the policy holders to grow and multiply their investments than in an account that would be annually taxed.
- Life insurance policies can be used as collateral: The cash value that you build up in a whole life insurance policy is considered as a hard asset and this means that it can be used as collateral against which you can borrow money. This is one of the most useful features of a life insurance policy. A family with a whole life insurance with a decent cash value can use it as down payment money as well.
Life insurance policies make lot of sense, especially when you are the bread-earner of the family. Who would like to see their family members go through financial crisis after their demise? When whole life insurance policies can combine savings option with insurance protection, this is perhaps the best way to protect your life. But if you wish to take out a life insurance policy within your means, you have to take good care of your health. The benefits are more and the premiums are less when you’re physically fit.