Life insurance is considered a fundamental tool for securing the financial future of individuals and their families [i]. Financial experts view life insurance as a cornerstone of sound financial planning [i]. In addition to providing financial security for your loved ones in the face of unforeseen circumstances, life insurance offers various benefits tailored to different needs [i].
Here are the main benefits of life insurance as stated in the “Insurance Handbook” source [i]:
- 1. Provides a Source of Income for Dependents: If family members rely on an individual’s income, life insurance can replace that income if the person dies [i]. A common example of this is parents with young children [i]. Insurance to replace income can be particularly useful if government- or employer-sponsored benefits for a surviving spouse or domestic partner would be reduced after the insured’s death [i].
- 2. Covers Final Expenses: Life insurance can pay for funeral and burial costs, probate and other estate administration costs, debts, and medical expenses not covered by health insurance [i]. This provides financial relief to those left behind by preventing them from incurring sudden and significant financial burdens [i].
- 3. Creates an Inheritance for Heirs: Even individuals with no other assets to pass on can create an inheritance by purchasing a life insurance policy and naming their heirs as beneficiaries [i]. This is an effective way to directly leave a financial asset to designated beneficiaries upon death [i].
- 4. Pays Federal and State “Death” Taxes: Life insurance payments can cover estate taxes, so that heirs do not have to liquidate other assets or receive a smaller inheritance [i]. This helps preserve the integrity of the inheritance and prevent potential losses from asset sales [i].
- 5. Contributes to Significant Charitable Organizations: Individuals can make a much larger contribution to a charity than if they donated the cash equivalent of the policy’s premiums, by naming a charity as the beneficiary of their life insurance policies [i]. This allows individuals to achieve their philanthropic goals with a greater impact than their lifetime premium payments [i].
- 6. Creates a Source of Savings (Cash Value): Some types of life insurance create a cash value [i]. This cash value, if not paid out as a death benefit, can be borrowed or withdrawn at the owner’s request [i]. Since most people prioritize paying their life insurance policy premiums, purchasing a cash-value policy can create a kind of “forced” savings plan [i]. Furthermore, the interest credited to this account is tax-deferred (and tax-exempt if the money is paid as a death claim) [i].
Additional Benefits of Buying Early:
The “Insurance Handbook” source details the six main benefits of life insurance mentioned above [i]. The source does not directly list a “7th benefit” or specifically detail the “benefits of buying insurance early” as a separate point. However, based on general insurance principles and common industry knowledge, there are significant additional advantages to purchasing life insurance at a younger age. While not numbered as specific “benefits” in the provided source, these can be inferred from general information about how insurance premiums are calculated:
- Lower Premiums: Insurers consider mortality rates when determining premiums [i]. Younger and healthier individuals generally have a lower mortality risk, which means those who obtain life insurance at a young age typically pay lower premiums [i]. As one ages, this risk increases, and consequently, premiums also rise.
- Easier Approval Process: Taking out a policy at a younger age often means simpler approval processes [i]. Health issues that may arise with age can make obtaining insurance coverage more difficult, require additional examinations, or increase premiums later on.
These factors highlight the cost and accessibility advantages of acquiring life insurance early, providing long-term benefits for financial planning.
