What is life insurance? What are the benefits? Is life insurance worth it? In today’s blog post, we’ll be taking a closer look at life insurance and at the end of this blog post, you’ll be able to determine whether life insurance is something you should do or not.
What is life insurance?
Life insurance is a contract between an insurer and an insurance policyholder where the insurer is bound to pay a chosen beneficiary a certain sum of money upon the death of the insured person. Based on the contract, critical illness can also trigger the payment.
If you want your loved ones to have a secured future in your absence then having life insurance is something you should consider adding to your financial plan. The money from life insurance can be used to cover a lot of things such as outstanding debts, final expenses, and also cover day-to-day expenses.
Types of life insurance
There are two major types of life insurance, the term life insurance policies and the whole of life (permanent) insurance policies.
Term life insurance
The term life insurance runs for a specified period and can only payout if you should die within that period. For example, it could run for five, ten, or twenty-five years, etc.
Whole of life insurance
The whole of life insurance on the other hand pays out regardless of the time you die as long as you were able to keep up with your premium payments.
Before anyone would be able to determine whether or not life insurance is worth it, one has to first weigh the benefits and the drawbacks of life insurance.
What are the benefits of life insurance?
Life insurance comes with a lot of benefits and we’ll be looking at a few of them below:
Life insurance offers you peace of mind
Everyone who has a family wants their family to be able to sustain themselves and live happily in their absence. No one likes to see their children or any member of their family suffer. That’s where life insurance comes into play. Life insurance ensures that your family members would be able to carry out day-to-day activities in your absence, they’ll be able to feed and also cater for school tuition.
Life insurance payouts are always tax-free
If you die while your life insurance policy is still running, your beneficiaries will receive a lump sum death benefit. The payouts for life insurance are not considered as income and as such, your beneficiaries won’t have to report the money when they are filing their tax returns.
You may be able to get coverage for terminal or chronic illnesses
A lot of life insurance companies offer endorsements (A.K.A riders) that are added to your policy to adjust or enhance your coverage. These endorsements give you access to all or some of your death benefits under certain circumstances. For example, for some policies, if you are diagnosed with a terminal illness and your life expectancy is less than a year, you will be entitled to your death benefit while you are still alive so that you’ll be able to cater for your care and other expenses.
What are the demerits of life insurance?
Life insurance, just like every other thing in this world has both benefits and demerits. You’ll find the demerits of life insurance below:
Life insurance is purchased for the benefit of others. This means that you don’t get to see or use the money you worked so hard to save up. Additionally, you may even have to forego some current expenditure just to meet up with premium payments.
The cash surrender values are usually less than the premiums paid during the first several policy years and in some cases, you may not be able to recover the premiums paid if the policy is surrendered.
Finally, the process of acquiring life insurance can be very frustrating. You’ll have to be sure if your insurance agent is trustworthy and if it’s the right product under the right carrier.
If you are having trouble selecting an insurance company to create a contract with then you should consider money line.